The European Commission said Thursday it welcomes the WTO Panel report published today which found that billions of dollars in US Federal and State subsidies granted to Boeing are illegal under WTO rules. This landmark ruling has clearly confirmed the EU’s position on all of its main claims, notably that between 1989 and 2006 the US Federal and State governments granted WTO-incompatible subsidies to Boeing amounting to at least US$ 5.3 billion. Planned future subsidies are estimated to be worth between US$ 3 to 4 billion.
“This WTO Panel report clearly shows that Boeing has received huge subsidies in the past and continues to receive significant subsidies today. The US began this dispute in 2004 and now finds itself with a crystal clear ruling that exposes its long-running multi-billion dollar subsidisation of Boeing through Federal and State programmes as illegal.”, said EU Trade Commissioner Karel De Gucht. “These subsidies have resulted in substantial harm to EU interests, causing Airbus to lose sales, depress its aircraft prices and unfairly lose market share to Boeing. The detrimental costs to EU industry from this lengthy and onerous subsidisation run into billions of euro. We therefore welcome the WTO Panel’s report and call on the US Government to take the appropriate steps that may assist to achieve a mutually agreed solution to this dispute”, Commissioner De Gucht added.
The report is supported by clear and solid findings from the Panel covering each of the main sources of subsidisation provided by the US, including: (i) R&D programmes funds granted by NASA and the US Department of Defense (DoD) to Boeing amounting to US$1.3 – 2 billion; (ii) NASA and DoD “general support” to the tune of US$ 1.5 billion; (iii) Foreign Sales Corporation (FSC) export subsidies – US$ 2.2 billion; and (iv) Washington State tax breaks to a value of up to US$ 4 billion for the period 2006-24.
All of these subsidies are in violation of WTO Rules since they constitute actionable subsidies which cause adverse effects to the interests of the EU and Airbus. The panel also confirmed that the federal FSC/ETI tax breaks for Boeing amount to prohibited subsidies, which according to WTO rules must be withdrawn by the US without delay.
These massive subsidies from multiple US Government sources have enabled Boeing to develop new aircraft, and in particular the 787 “Dreamliner”, at much lower cost than would otherwise have been the case.
In contrast to the Panel in the Airbus case, this Panel quantified the amount of WTO-incompatible subsidies granted to Boeing. Support to Boeing has been and continues to be in the form of non-repayable grants or free access to government facilities, as opposed to that in the Airbus case where the most important instrument, Repayable Launch Investment (RLI), was considered to be WTO-compatible in principle, with the subsidy element being, for certain cases, solely the difference in conditions provided in comparison to other repayable commercial financing.
Background to the WTO Aircraft Cases
Since October 2004, the EU and US have been contesting at the WTO their Governments’ respective support to their aerospace industries. Both WTO challenges relate to alleged illegal WTO support to respectively Airbus and Boeing over a 20 to 30 year period.
Prior to these WTO challenges, US and EU government support to their aircraft producers had been regulated by the so-called “Bilateral EU-US Agreement on Trade in Large Civil Aircraft”. This agreement, concluded in 1992, allowed each party to provide a certain level of support to their respective aircraft industry. In the case of the EU, the agreement permitted granting of so-called “Repayable Launch Investment” to Airbus i.e. loans repaid with interest under terms specified in the Agreement. In the case of the US, it allowed a certain level of government financed R&D support to the US aerospace producer, Boeing. In order to monitor compliance with the terms of the bilateral agreement, annual meetings and regular exchanges of information took place.
On the 6 October 2004, the United States quite unexpectedly and unilaterally announced its withdrawal from the 1992 Agreement and immediately filed a challenge at the WTO of all EU support ever granted to Airbus, even though the US had previously agreed to this support.
In turn, the EU was left with little option than to respond itself immediately with a parallel WTO challenge of US government support to US aerospace industry (i.e. Boeing) by Federal, State and local authorities, including benefits to Boeing under the so-called US Foreign Sales Corporation Scheme, which the US government had continued to provide to Boeing, despite these subsidies having repeatedly been found to violate WTO rules.
These two parallel WTO challenges, the “Airbus case” (DS 316: the US challenge of EU support for Airbus) and the “Boeing case” (DS 353: the EU challenge of US support to Boeing), despite having been initiated on the same day (6 October 2004), have followed different timetables due to a number of delays at the WTO. In the “Airbus case”, the WTO panel made its report public on 30 June 2010 whereas in the “Boeing case”, the panel only issued its final public report on 31 March 2011.
As a result of the delays of the DS 353 panel, there is now close to a year’s gap between the two WTO proceedings, a fact which the EU has continuously expressed its dissatisfaction with. On 23 July 2010 the EU appealed the panel’s findings in DS316 and these proceedings are expected to be completed in the first half of 2011.