U.S., Boeing win predicted in WTO case

Boeing and the United States are set to win a case at the World Trade Organization (WTO) over $15 billion in European government loans to Airbus, the world's largest aircraft maker, U.S. trade lawyers and former officials said.

A panel of WTO judges is scheduled to rule today on a U.S. complaint over loans that the U.K., Spain, Germany and France provided Airbus over four decades. It will be a preliminary ruling in a five-year dispute over aid between Toulouse, France-based Airbus and Boeing.

"If it's a straightforward reading of the rules, the panel should find against Airbus," former U.S. Trade Representative Susan Schwab said in an interview.

The case is the biggest in the 14-year history of the WTO, and could cast a cloud over the commercial relationship between the U.S. and Europe. It may also reshape funding for the two largest plane makers.

WTO judges are scheduled to rule within six months on a European Union (EU) counterclaim against U.S. assistance that helped Boeing develop the new 787 Dreamliner and other aircraft. The EU cited military contracts, NASA research grants and state tax breaks.

Claude Barfield, a resident scholar at the American Enterprise Institute, a public-policy research group in Washington, D.C., said he expects the WTO eventually to rule against both Boeing and Airbus.

That means at some point both governments will need to sit down and craft an agreement on what aid is permissible, Barfield said.

"It's easy to speculate about the outcomes of a match when not even the first half is over," said Maggie Bergsma, a spokeswoman for Airbus, in an e-mailed statement. "The 787 remains the most subsidized aircraft in the history of aviation."

The immediate impact of the preliminary ruling depends on terms of the decision, which may be hundreds of pages long, and on how each government reacts.

The judges' findings can be appealed, a process that in some WTO cases has taken years.

The WTO judges may also say whether aid provided since the case was filed in 2004 is covered by the ruling.

Airbus has received commitments from European governments for $4.2 billion in loans to help it produce its new A350 aircraft, scheduled to enter service in 2013.

While that plane wasn't part of the case before the WTO, the U.S. argued to the international trade arbiter that a ruling against previous disbursements would prohibit all such "launch aid."

Aid to A350

The current case should have no effect on aid to the A350, Lutz Guellner, a spokesman for the European Commission, said last week. The Brussels-based commission is the executive arm of the 27 nation EU.

The U.S. also argued that EU loans were used to boost exports of Airbus jets, making them "prohibited subsidies" in the legal terminology of the WTO.

"The key factor is whether so-called launch aid is found to be prohibited or not," John Magnus, a lawyer at Miller & Chevalier in Washington and an expert on WTO subsidies disputes, said in an interview. "If so, it will very quickly become very ugly for the European side."

Magnus said he expects the WTO to find against the EU in some fashion. Labeling the aid a prohibited subsidy would force bigger changes by the EU in order to comply, he said.

The WTO can't force a country to change its policies. Instead, after appeals are exhausted, it can authorize retaliation against products from countries found in violation.

The effect of a ruling against Airbus "depends on what the U.S. politicians want to do with it," Richard Aboulafia, an analyst at the Fairfax, Virginia-based Teal Group, which publishes research on aerospace and defense companies, said in an interview.

Tanker contract

Airbus is a unit of European Aeronautic, Defence & Space. Parent EADS is bidding in the U.S. with Northrop Grumman for a $35 billion Pentagon project to build Air Force refueling tankers. Its top rival for the contract is Boeing.

"Boeing's political supporters could be able to use a WTO victory as an effective weapon to stop any decision to give Northrop/EADS a tanker contract," Aboulafia said.

Los Angeles-based Northrop said the two issues are separate.

"Those who try to inject the WTO issue into the tanker competition are doing our war fighters a major disservice," Randy Belote, a company spokesman, said in an e-mail Thursday.

Both the EU and U.S. would need to make an effort to comply with the WTO's decisions on aircraft aid, according to William Reinsch, president of the National Foreign Trade Council, a Washington, D.C.-based organization that represents the largest U.S. exporters, including Boeing.

Unintended consequences

Otherwise the countries risk undercutting their ability to get future trade decisions upheld against countries such as China or India, he said.

"This is going to cause them, no doubt, some political complication," said Reinsch, a former Commerce Department trade official. "But if they flout the rules, it would compromise the institution."