Truce between Boeing and Airbus

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 China

CNN, 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)

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