The emergence of the digital economy has brought about increased competition across a wide range of products and services. The digital economy has provided businesses with the opportunity to produce new categories of goods and services with the aid of artificial intelligence. This new digital era has also been beneficial for consumers who now have greater choice and access to often higher-quality products at lower prices.
But while the digital revolution has facilitated greater competition, it also presents some challenges for competition law enforcement. Competition agencies continue to intensify their scrutiny of the digital economy as they try to get to grips with both the opportunities and challenges.
The role of regulation
Many agencies are aware that regulatory overreach could have negative effects on the development of digital markets. Therefore, any competition enforcement in this area needs to be evidenced-based.
A number of agencies have commissioned market studies or appointed experts in the digital field to prepare industry reports. While many of these reports and studies have found that existing competition rules generally continue to provide a solid basis for protecting competition in the digital age, there is growing demand for various changes to regulation. The reports have generally noted that the traditional tools for competition analysis may require some adaptation or refinement to address better the specificities of online markets, such as the multisided nature of platforms, network effects, zero-price markets, ‘big data’ and the increased use of algorithms.
Tech giants and online platforms, in particular, have been a focus of recent intervention by competition authorities. Investigations and intervention have related to a range of practices, including self-preferencing in the ranking of search results, the bundling of apps (and other alleged anti-competitive leveraging strategies), the collection, usage and sharing of data, and the setting of access conditions to mobile ecosystems and app stores.
The duration and complexity of these investigations have been met with concerns that competition authorities are not sufficiently equipped to protect competition in fast-moving digital markets. These concerns have been amplified by the growth in size and importance of online platforms, their significant economies of scale and network effects, and the risk that market power in digital markets can become quickly entrenched.
In addition to the commissioned reports, some agencies have established or appointed specialist digital markets units or officers. The aim of such units is to develop expertise and regulation to deal with fast-paced digital markets. In Europe, The Digital Markets Act (DMA) was adopted by the EU in response to these concerns to establish a uniform ex-ante regulatory regime to make digital markets fairer and more competitive, and to prevent a fragmentation of the EU’s internal market.
A recent case concerns Apple. Because of the Digital Markets Act, Apple has been required to allow app store competitors onto its products. This will come into effect in 2024.
UK policy
In the UK, the government has been concerned that ‘the unprecedented concentration of power amongst a small number of digital firms is holding back innovation and growth’. UK competition rules are thus set to change significantly, with the government setting out the framework for an entirely new ‘pro-competition regime’ for digital markets. As it states in the Executive Summary to its proposals for such a regime (see linked UK official publication below):
The size and presence of ‘big’ digital firms is not inherently bad. Nonetheless, there is growing evidence that the particular features of some digital markets can cause them to ‘tip’ in favour of one or two incumbents… This market power can become entrenched, leading to higher prices, barriers to entry for entrepreneurs, less innovation, and less choice and control for consumers.
It has established a new Digital Markets Unit (DMU) within the Competition and Markets Authority (CMA). It was launched in ‘shadow form’ in April 2021, pending the introduction of the UK’s new digital regulatory regime. Under the proposals, the new regime will focus on companies that the DMU designates as having ‘strategic market status’.
The government is expected to publish its much-awaited Digital Markets, Competition and Consumer Bill, which, according to legal experts, will represent the most significant reform of UK competition and consumer protection laws in years.
It is expected that the Bill will result in important reforms for competition law, but it is also expected to give the DMU powers to enforce a new regulatory regime. This new regime will apply to UK digital firms that have ‘strategic market status’ (SMS). This will be similar to the EU’s Digital Markets Act in how it applies to certain ‘gatekeeper’ digital firms. However, the UK regulations are intended to be more nuanced than the EU regime in terms of how SMS firms are designated and the specific obligations they will have to comply with.
A report by MPs on the influential Business, Energy and Industrial Strategy Committee published in October, urged the Government to publish a draft Digital Markets Bill that would help deter predatory practices by big tech firms ‘without delay’.
On 17th November 2022, the UK Government announced in its Autumn Statement 2022 that it will bring forward the Bill in the third Parliamentary session. There has been no specific date announced yet for the first reading of the Bill, but it will probably be in Spring 2023. Current expectations are that the new DMU regime and reforms to competition and consumer protection laws could be effective as early as October 2023.
Proposals for the Bill were trailed by the Government in the Queen’s Speech. It announced measures that would empower the Competition and Markets Authority’s (CMA) Digital Markets Unit (DMU) to rein in abusive tech giants by dropping the turnover threshold for immunity from financial penalties from £50 million to £20 million and hiking potential maximum fines to 10% of global annual income. Jeremy Hunt, the Chancellor of the Exchequer, said that the Bill, once enacted, would ‘tackle anti-competitive practice in digital markets’ and provide consumers with higher quality products and greater choice. The strategy includes tailored codes of conduct for certain digital companies and a bespoke merger control regime for designated firms.
The Bill is also expected to include a wide range of reforms to the competition and consumer law regimes in the UK, in particular:
- wide-ranging changes to the CMA’s Competition Act 1998 and market study/investigation powers, including significant penalties for non-compliance with market investigation orders;
- significant strengthening of the consumer law enforcement regime by enabling the CMA directly to enforce consumer law through the imposition of fines;
- changes to UK consumer laws to tackle subscription traps and fake reviews and to enhance protections for savings schemes.
Competition law expert Alan Davis of Pinsent Masons said:
Importantly, the Bill will bring about major reforms to consumer protection law, substantially strengthening the CMA’s enforcement powers to mirror those it already uses in antitrust cases, as well as important changes to merger control and competition rules.
It is anticipated that the Bill will announce the most significant reforms of UK competition and consumer protection laws in years and is expected to have an impact on all business in the UK to varying degrees. It is advised, therefore, that businesses need to review their approach to sales and marketing given the expected new powers of the CMA to impose significant fines in relation to consumer law breaches.
Conclusions
Technological innovation is largely pro-competitive. However, competition rules must be flexible and robust enough to deal with the challenges of the online world. A globally co-ordinated approach to the challenges raised in competition law by the digital age remains important wherever possible. Under the EU’s Digital Markets Act, firms that are designated as gatekeepers, and those defined as having strategic market status under the UK regime, will be required to undertake significant work to ensure compliance with the new rules.
Articles
UK official publications
Questions
- For what reasons may digital markets be more competitive than traditional ones?
- What types of anti-competitive behaviour are likely in digital markets?
- Explain what are meant by ‘network economies’? What are their implications for competition and market power?
- Explain what is meant by ‘bundling’? How is this likely to occur in digital markets?
- Give some examples where traditional markets are combined with online ones. Does this make it difficult to pursue an effective competition policy?
- Give some examples of ways in which firms can mislead or otherwise take advantage of consumers in an e-commerce environment.
Global oil prices (Brent crude) reached $128 per barrel on 9 March, a level not seen for 10 years and surpassed only in the run up to the financial crisis in 2008. Oil prices are determined by global demand and supply, and the current surge in prices is no exception.
A rise in demand and/or a fall in supply will lead to a rise in the price. Given that both demand and supply are relatively price inelastic, such shifts can cause large rises in oil prices. Similarly, a fall in demand or rise in supply can lead to a large fall in oil prices.
These changes are then amplified by speculation. Traders try to get ahead of price changes. If people anticipate that oil prices will rise, they will buy now, or make a contract to buy more in the future at prices quoted today by buying on the oil futures market. This then pushes up both spot (current) prices and futures prices. If demand or supply conditions change, speculation will amplify the reaction to such a change.
What has happened since 2019?
In 2019, oil was typically trading at around $60 to $70 per barrel. It then fell dramatically in early 2020 as the onset of COVID-19 led to a collapse in demand, for both transport and industry. The price fell below $20 in late April (see charts: click here for a PowerPoint).
Oil prices then rose rapidly as demand recovered somewhat but supply chains, especially shipping, were suffering disruptions. By mid-2021, oil was once more trading at around $60 to $70 per barrel. But then demand grew more strongly as economic recovery from COVID accelerated. But supply could not grow so quickly. By January 2022, Brent crude had risen above $80 per barrel.
Then worries began to grow about Russian intentions over Ukraine as Russia embarked on large-scale military exercises close to the border with Ukraine. People increasingly disbelieved Russia’s declarations that it had no intention to invade. Russia is the world’s second biggest producer of oil and people feared that deliberate disruptions to supply by Russia or other countries banning imports of Russian oil would cause supply shortages. Speculation thus drove up the oil price. By 23 February, the day before the Russian invasion of Ukraine, Brent crude had risen to $95.
With the Russian invasion, moves were made by the EU the USA and other countries to ban or limit the purchase of Russian oil. This increased the demand for non-Russian oil.
On 8 March, the USA announced that it was banning the import of Russian oil with immediate effect. The same day, the UK announced that it would phase out the import of Russian oil and oil products by the end of 2022.
The EU is much more dependent on Russian oil imports, which account for around 27% of EU oil consumption and 2/3 of extra-EU oil imports. Nevertheless, it announced that it would accelerate the move away from Russian oil and gas and towards green alternatives. By 8 March, Brent crude had risen to $128 per barrel.
The question was then whether other sources of supply would help to fill the gap. Initially it seemed that OPEC+ (excluding Russia) would not increase production beyond the quotas previously agreed by the cartel to meet recovery in world demand. But then, on 9 March, the UAE Ambassador to Washington announced that the county favoured production increases and would encourage other OPEC members to follow suit. With the announcement, the oil price fell by 11% to £111. But the next day, it rose again somewhat as the UAE seemed to backtrack, but then fell back slightly as OPEC said there was no shortage of oil.
This is obviously an unfolding story with the suffering of the Ukrainian people at its heart. But the concepts of supply and demand and their price elasticity and the role of speculation are central to understanding what will happen to oil prices in the coming months with all the consequences for poverty and economic hardship.
Articles
Data
Questions
- Use a demand and supply diagram to illustrate what has happened to oil prices over the past two years. How has the size of the effects been dependent on the price elasticity of demand for oil and the price elasticity of supply of oil?
- Use a demand and supply diagram to show what has been happening to the price of natural gas over the past two years. Are the determinants similar to those in the oil market? How do they differ (if at all)?
- What policy options are open to governments to deal with soaring energy prices?
- What are the distributional consequences of the rise in energy prices? (see the blog: Rise in the cost of living.)
- Under what circumstances are oil prices over the next six months likely (a) fall; (b) continue rising?
The global battle for fuel is expected to peak this winter. The combination of rising demand and a tightening of supply has sparked concerns of shortages in the market. Some people are worried about another ‘winter of discontent’. Gas prices have risen fivefold in Europe as a whole.
In the UK, consumers are likely to find that the natural gas needed to heat their homes this October will cost at least five times more than it did a year ago. This surge in wholesale gas prices has seen several UK energy suppliers stop trading as they are unable to make a profit. This is because of an energy price cap for some consumers and various fixed price deals they had signed with their customers.
There are thus fears of an energy crisis in the UK, especially if there is a cold winter. There are even warnings that during a cold snap, gas supply to various energy-intensive firms may be cut off. This comes at a time when some of these industries are struggling to make a profit.
Demand and supply
The current situation is a combination of long- and short-term factors. In spring 2020, the demand for gas actually decreased due to the pandemic. This resulted in low gas prices, reduced UK production and delayed maintenance work and investment along global supply chains. However, since early 2021, consumer demand for gas has soared. First, there was an increased demand due to the Artic weather conditions last winter. This was then followed by heatwaves in the USA and Europe over the summer, which saw an increase in the use of air conditioning units. With the increased demand combined with calm weather conditions, wind turbines couldn’t supply enough power to meet demand.
There has also been a longer-term impact on demand throughout the industry due to the move to cleaner energy. The transitioning to wind and solar has seen a medium-term increase in the demand for gas. There is also a long-term impact of the target for net zero economies in the UK and Europe. This has hindered investors’ willingness to invest in developing supplies of fossil fuels due the fact they could become obsolete over the next few decades.
Nations have also been unable to build up enough supplies for winter. This is partly due to Europe’s domestic gas stocks having declined by 30% per cent in the past decade. This heightened situation is leading to concerns that there will be black-outs or cut-offs in gas this winter.
Importation of gas
A concern for the UK is that it has scant storage facilities with no long-term storage. The UK currently has very modest amounts of storage – less than 6% of annual demand and some five times less than the average in the rest of Europe. It has been increasingly operating a ‘just-in-time model’, which is more affected by short-term price fluctuations in the wholesale gas market. With wind power generation remaining lower than average during summer 2021, more gas than usual has been used to generate electricity, leaving less gas to go into storage.
However, some argue that the problem is not just the UK’s physical supply of gas but demand for gas from elsewhere. Around half of the UK’s supply comes from its own production sites, while the rest is piped in from Europe or shipped in as liquefied natural gas (LNG) from the USA, Qatar and Russia. In 2019, the UK imported almost 20% of its gas through LNG shipments. However, Asian gas demand has grown rapidly, expanding by 50% over the past decade. This has meant that LNG has now become much harder to secure.
The issue is the price the UK has to pay to continue receiving these supplies. Some in the gas industry believe the price surge is only temporary, caused by economic disruptions, while many others say it highlights a structural weakness in a continent that has become too reliant on imported gas. It can be argued that the gas crisis has highlighted the lack of a coherent strategy to manage the gas industry as the UK transitions to a net zero economy. The lack of any industry investment in new capacity suggests that there is currently no business case for new long-term storage in the UK, especially as gas demand is expected to continue falling over the longer term.
Impact on consumers and industry
Gas prices for suppliers have increased fivefold over the past year. Therefore, many companies face a considerable rise in their bills. MSome may need to reduce or pause production – or even cease trading – which could cause job losses. Alternatively, they could pass on their increased costs to customers by charging them higher prices. Although energy-intensive industries are particularly exposed, every company that has to pay energy bills will be affected. Due to the growing concerns about the security of winter gas supplies those industries reliant on gas, such as the fertiliser industry, are restricting production, threatening various supply chains.
Most big domestic gas suppliers buy their gas months in advance, meaning they will most likely pass on the higher price rises they have experienced in the past few months. The increased demand and decreased supply has already meant meant that customers have faced higher prices for their energy. The UK has been badly hit because it’s one of Europe’s biggest users of natural gas – 85% of homes use gas central heating – and it also generates a third of the country’s electricity.
The rising bills are particularly an issue for those customers on a variable tariff. About 15 million households have seen their energy bills rise by 12% since the beginning of October due to the rise in the government’s energy price cap calculated by the regulator, Ofgem. A major concern is that this increase in bills comes at a time when the need to use more heating and lighting is approaching. It also coincides with other price rises hitting family budgets and the withdrawal of COVID support schemes.
Government intervention – maximum pricing
If the government feels that the equilibrium price in a particular market is too high, it can intervene in the market and set a maximum price. When the government intervenes in this way, it sets a price ceiling on certain basic goods or services and does not permit the price to go above that set limit. A maximum price is normally set for reasons of fairness and to benefit consumers on low incomes. Examples include energy price caps to order to control fuel bills, rent controls in order to improve affordability of housing, a cap on mobile roaming charges within the EU and price capping for regional monopoly water companies.
The energy price cap
Even without the prospect of a colder than normal winter, bills are still increasing. October’s increase in the fuel cap means that many annual household fuel bills will rise by £135 or more. The price cap sets the maximum price that suppliers in England, Wales and Scotland can charge domestic customers on a standard, or default tariff. The cap has come under the spotlight owing to the crisis among suppliers, which has seen eleven firms fold, with more expected.
The regulator Ofgem sets a price cap for domestic energy twice a year. The latest level came into place on 1 October. It is a cap on the price of energy that suppliers can charge. The price cap is based on a broad estimate of how much it costs a supplier to provide gas and electricity services to a customer. The calculation is mainly made up of wholesale energy costs, network costs such as maintaining pipes and wires, policy costs including Government social and environmental schemes, operating costs such as billing and metering services and VAT. Therefore, suppliers can only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less. A household’s total bill is still determined by how much gas and electricity is used.
- Those on standard tariffs, with typical household levels of energy use, will see an increase of £139.
- People with prepayment meters, with average energy use, will see an annual increase of £153.
- Households on fixed tariffs will be unaffected. However, those coming to the end of a contract are automatically moved to a default tariff set at the new level.
Ordinarily, customers are able to shop around for cheaper deals, but currently, the high wholesale prices of gas means that cheaper deals are not available.
Despite the cap limiting how much providers can raise prices, the current increase is the biggest (and to the highest amount) since the cap was introduced in January 2019. As providers are scarcely making a profit on gas, there are concerns that a further increase in wholesale prices will cause more suppliers to be forced out of business. Ofgem said that the cap is likely to go up again in April, the next time it is reviewed.
Conclusion
The record prices being paid by suppliers and deficits in gas supply across the world have stoked fears that the energy crisis will get worse. It comes at a time when households are already facing rising bills, while some energy-intensive industries have started to slow production. This has started to dent optimism around the post-pandemic economic recovery.
Historically, UK governments have trusted market mechanisms to deliver UK gas security. However, consumers are having to pay the cost of such an approach. The price cap has meant the UK’s gas bills have until now been typically lower than the EU average. However, the rise in prices comes on top of other economic problems such as labour shortages and increasing food prices, adding up to an unwelcome rise in the cost of living.
Video
Articles
UK government/Ofgem
Questions
- Using a supply and demand diagram, illustrate what has happened in the energy market over the past year.
- What are the advantages and disadvantages of government intervention in a free market?
- Explain why it is necessary for the regulator to intervene in the energy market.
- Using the concept of maximum pricing, illustrate how the price cap works.
Competition authorities across the globe have recently been paying close attention to the activity of large firms in high-tech markets, in particular Google, Amazon, Facebook and Apple. One estimate suggests that 30 cases have been opened by the authorities since 2010, and a third of these were launched in 2020.
One of the most prominent recent cases in the US courts concerns a complaint made by Epic Games, producer of the popular Fortnite game, against Apple. The background to the case is Apple’s standard practice on its App Store of taking a 30% cut of all paid app and in-app purchases. Therefore, a Fortnite player purchasing $10 worth of in-game currency would result in $7 for Epic and $3 for Apple.
However, in August 2020 Epic decided, contrary to Apple’s terms and conditions, to offer players an alternative way to purchase in-game currency. Gamers would see a choice screen giving them the option to buy currency through the Apple App Store or to buy it directly from Epic. Crucially, purchasing directly from Epic would be cheaper. For example, the same $10 worth of in-game currency on the App Store would cost only $8 if purchased directly from Epic.
It is clear to see why Epic was in favour of direct payments – it earns revenue of $8 instead of $7. However, note that the benefits for gamers are even larger – they save $2 by buying directly. In other words, Epic is passing on 2/3 of the cost saving to consumers.
Apple very quickly responded to Epic’s introduction of the direct purchase alternative by removing Fortnite from the App Store. Epic then filed a complaint with the US District Court.
The Epic v Apple court case
The case concerned Apple restricting game developers’ ability to promote purchasing mechanisms outside the App Store. However, more broadly, it also examined Apple’s complete control of the iOS app market since all apps must be distributed through the Apple App Store. Epic had previously disrupted PC games distribution by launching its own platform with lower fees. The setup of iOS and Apple’s actions against Epic make this an impossible way to reach users.
The Court’s analysis of the Epic v Apple case depended upon several key factors. First, the market definition. To be found to have breached competition law Apple must have a significant share of the market. If the market is defined as that for iOS apps, this is clearly the case. However, if, as Apple argues, it is broader, encompassing the options to play Epic games through web browsers, gaming consoles and PCs, then this is not the case.
Second, even if the market is narrowly defined, Apple argues that its control of the app distribution market is essential to provide user friendly and secure provision of apps. Furthermore, revenue extracted from app producers can enable more investment in the iOS. Without Apple controlling the market, app producers would be able to free-ride on the visibility the App Store provides for their apps.
The ruling
The US Court announced its ruling on 10 September 2021. The judge decided that the market was broader than just iOS and thus Apple is not considered to be a monopolist. This has been touted as a major success for Apple, as it will allow the company to maintain its control of the app distribution market. However, the Court also ruled that Apple must allow game developers to link and direct users to alternative purchasing methods outside the App Store.
The Court’s decision in the Epic v Apple case closely follows concessions recently made by Apple for so called ‘reader apps’ such as Spotify and Netflix. Following an investigation by the Japanese authorities, these concessions allowed such apps to promote and receive purchases directly from consumers as long as they were made outside the app. These apps could be treated differently, as digital goods are consumed on multiple devices. However, the decision in the Epic case now extends such concessions to gaming apps.
It is unclear whether Apple will appeal the decision in the case Epic brought. If not, Apple stands to lose considerable revenue from its 30% share of in-app purchases. It will be very interesting to see how this ruling affects how Apple runs the App Store. Epic, on the other hand, has already made clear it will appeal the decision, aiming to prevent Apple gaining a share of any payment users make outside the app.
Matt Olczak and Jon Guest
Articles
Questions
- Why might a firm involved in a competition case, such as Apple, try to convince the authorities to define the relevant market as broadly as possible?
- Using the example of the Epic v Apple case, explain how Apple’s actions could be seen as both exclusionary and exploitative abuses of a dominant position.
Boeing and Airbus have called a truce in their 17-year battle over subsidies. During this period, both have accused each other of unfair government subsidies to their respective plane makers.
The long-running trade dispute
In October 2004, the USA requested the establishment of a WTO panel to consider whether Airbus was providing unfair subsidies to develop its new super-jumbo – the A380. This provoked a counter-request by Airbus, claiming unfair subsidies of $27.3 billion for Boeing by the US government since 1992. In July 2005, two panels were set up to deal with the two sets of allegations.
In June 2010, the WTO panel circulated its findings on Boeing’s case against Airbus. It found Airbus guilty of using some illegal subsidies to win contracts through predatory pricing, but dismissed several of Boeing’s claims because many of the subsidies were reimbursable at commercial rates of interest. However, some of the ‘launch aid’ for research and development was given at below market rates and so violated WTO rules. The report evoked appeal and counter-appeal from both sides, but the WTO’s Appellate Body reported in May 2011 upholding the case that ‘certain subsidies’ provided by the EU and member states were incompatible with WTO rules. In June 2011, the EU accepted the findings.
In March 2011, the WTO panel circulated its findings on Airbus’s case against Boeing. The EU claimed that ten specific measures amounted to subsidies to Boeing, which were inconsistent with the WTO’s rules on subsidies (the SCM agreement). It upheld three of ten alleged breaches, including subsidies between 1989 and 2006 of at least $5.3 billion. These subsidies were adjudged to have resulted in adverse effects to the EU’s interests, specifically in lost sales, especially to third-country markets, and in significantly suppressing the price at which Airbus was able to sell its aircraft.
But these rulings were not the end of the matter. Various appeals and counter-appeals were lodged by both sides with varying degrees of success. Also the disputes extended to other wide-bodied jets and to narrow-bodied ones too with claims by both sides of unfair subsidies and tax breaks.
On 9 June 2017 the WTO’s compliance panel rejected several EU claims that the USA had failed to withdraw all illegal subsidies to Boeing. However, it also found that the USA had not complied with an earlier ruling to abolish illegal tax breaks. Both sides claimed victory. Airbus claimed that the ruling had seen the WTO condemn non-compliance and new subsidies. In particular, it focused on the WTO ruling that Washington State subsidies had resulted in a significant loss of sales for Airbus. On the other hand, a Boeing press release spoke of a US win in a major WTO compliance ruling. Boeing claimed that that ruling meant that the United States had complied with ‘virtually all’ of the WTO’s decisions in the counter-case that the EU had filed against the USA in 2006.
On 27 June 2017, as expected, the EU challenged the WTO decision. This meant that the EU’s case would go back to the WTO’s appellate body, which was still considering a separate US case over state aid to Airbus.
On 15 May 2018, the WTO ruled that Airbus did not use unfair subsidies for narrow-bodied jets, such as the A320, which competes with the 737, but did for wide-bodied jets. The EU said that it would comply with the WTO ruling over the support for wide-bodied jets.
In 2019, the WTO ruled that the EU had illegally provided support to Airbus. The USA responded with tariffs of up to $7.5bn on a range of goods imported from the EU. In a parallel case, the WTO ruled that the US benefits to Boeing also violated trade rules, authorising the EU to impose tariffs on US imports worth roughly $4bn. Then in March 2020, the USA imposed a 15% tariff on Airbus aircraft.
The truce
Agreement was reached on 15 June 2021 in trade talks between the USA and the EU in Brussels. Both sides recognised that the dispute had been a negative-sum game, with both sides losing. It was thus agreed to suspend for five years all tariffs on aircraft and on a range of other goods, such as EU cheese and wine and US tobacco and spirits. The agreement did not include ending EU tariffs on US steel, however.
It was also agreed to work on an overarching agreement on subsidies, which would allow fair support by governments on both sides, and to co-operate in finding ways to counter unfair state investment in aircraft by China. US Trade Representative Katherine Tai said that the agreement ‘includes a commitment for concrete joint collaboration to confront the threat from China’s ambitions to build an aircraft sector on non-market practices’. China’s state-sponsored aerospace manufacturer, the Commercial Aircraft Corporation of China, or Comac, sees its C919, now in late stages of development, as a direct rival to the Airbus A320neo and the Boeing 737 Max.
To work out the details of US-EU collaboration, a working group will be set up. It will consider ways of ensuring that finance is provided on market terms, that R&D funding is transparent and that support given to aircraft manufactures will be equivalent by each side and will avoid harming the other side. It will consider just how the two sides can co-operate to address unfair competition from elsewhere.
Two days later, an almost identically worded deal was reached between the USA and the UK to end tariffs on a range of goods and join the EU-USA co-operation on aircraft manufacture.
Articles
US and Europe end Airbus-Boeing dispute as they eye threat from ChinaCNN, Charles Riley and Kevin Liptak (15/6/21)
- After 17 years, truce nears in U.S.-Europe jet subsidy war
Reuters, Tim Hepher, Andrea Shalal, David Shepardson and Philip Blenkinsop (15/6/21)
- U.S, EU agree truce in 17-year Airbus-Boeing conflict
Reuters, Philip Blenkinsop (16/6/21)
- After EU, Britain and U.S. reach truce in aircraft trade dispute
Reuters, Tim Hepher and Alistair Smout (17/6/21)
- EU and US end Airbus-Boeing trade dispute after 17 years
Financial Times, Jim Brunsden, Sam Fleming, Aime Williams and James Politi (15/6/21)
- Boeing-Airbus trade row set to end after 17 years
BBC News (16/6/21)
- Biden, E.U. end 17-year Airbus-Boeing trade dispute, seek to calm relations after Trump
The Washington Post, Michael Birnbaum, Anne Gearan and David J. Lynch
- EU, U.S. Agree to Five-Year Truce in Boeing-Airbus Trade Dispute
Bloomberg, Alberto Nardelli, Nikos Chrysoloras and Jennifer Jacobs (15/6/21)
Questions
- Choose any one particular complaint to the WTO by either Boeing or Airbus and assess the arguments used by the WTO in its ruling.
- Are subsidies by aircraft manufacturers in the interests of (a) passengers; (b) society in general?
- Is collaboration between Boeing and Airbus in the interests of (a) passengers; (b) society in general?
- How is game theory relevant to the long-running disputes between Boeing and Airbus and to their relationships in the coming years?
- Would cheaper aircraft from China be in the interests of (a) passengers; (b) society in general?
- Explain what is meant by ‘strategic trade theory’. How is it relevant to aircraft manufacture?