As WTO readies Airbus ruling, Boeing-funded study calls for trade sanctions

The World Trade Organization (WTO) is expected to release a final ruling Tuesday confirming interim findings that European governments provided Airbus with illegal subsidies as it grew to overtake Boeing as the world's dominant airplane manufacturer.

The drumbeat for aggressive U.S. action against the European jet-maker has already begun with the release Wednesday of a study — suggested and paid for by Boeing — conducted by a leading aerospace analyst.

Loren Thompson, of the Lexington Institute, published an analysis of the Airbus subsidies, which he characterized as "predatory" and as having destroyed the U.S. lead in the aerospace sector at a cost of tens of thousands of American jobs.

In a teleconference on the release of his report, Thompson called for the imposition of sanctions in the form of tariffs and quotas applied to European airliners sold in the U.S.

"We have really damaged this sector by letting the Europeans get away with this for 30 or 40 years," Thompson said. "We have to make it clear to the Europeans that we just won't tolerate this anymore."

The imminent ruling against European subsidies comes amid heightened trans-Atlantic trade tensions after Airbus and its U.S. partner, Northrop Grumman, withdrew from the U.S. Air Force refueling-tanker competition, claiming that it was slanted to favor Boeing.

Boeing sees the WTO ruling as important to its near-term market prospects as Airbus develops its next new airplane — the A350, which will go head to head with Boeing's 777 as well as the 787 Dreamliner. European governments are finalizing launch subsidies for the A350 similar to those expected to be ruled illegal.

In addition, the WTO verdict may clarify financing rules ahead of the anticipated entry into the big commercial jet market of other players — specifically Brazil, Canada, China and Russia — all of which could potentially leverage government support to threaten the current Airbus-Boeing duopoly.

"This marks a significant step in the U.S. challenge: a final panel decision will establish clear guidelines for European governments and other countries about what type of financing is or isn't appropriate when building airplanes," said Bob Novick, a former U.S. trade official now acting as outside counsel advising Boeing on WTO matters.

The WTO verdict coming next week is almost a formality, finalizing an interim finding issued in September that so-called "launch aid" given to Airbus by European governments is an unfair subsidy that harms Boeing and is illegal under WTO rules.

"Launch aid" is the upfront money amounting to billions of dollars given to Airbus as it embarks on a new airplane-development program and which, if the airplane proves a success, it then pays back to the European governments over subsequent years as the planes are delivered.

The formal ruling will be delivered confidentially to the U.S. and European governments Tuesday but may not be officially released to the public for several months.

Thompson said that while some subsidies, such as state and local government support for industrial-development projects, are legitimate under WTO rules, Airbus-style launch aid is not.

"Launch aid is really the critical thing," he said. Boeing "doesn't get anything remotely as lucrative."

Under a 1992 bilateral treaty between the U.S. and the European Union, this form of subsidy had previously been allowed. But the U.S. pulled out of that agreement in 2003.

Thompson said launch aid was permissible when the Europeans were attempting to support an "infant industry" against the then massively dominant U.S. companies. It became "blatantly unfair," however, to maintain the subsidies after Airbus had achieved parity with and even surpassed Boeing.

With Airbus now the top player worldwide, "they have maintained their subsidies at a very high level," Thompson said.

A corresponding ruling in the European Union's WTO countersuit alleging Boeing subsidies are illegal is not expected until much later. An interim ruling may come this summer.

Airbus spokeswoman Maggie Bergsma emphasized the likelihood of Boeing also being found guilty of taking illegal subsidies.

"This is a never-ending story. With appeals coming and going, we are years away from final rulings, while we all know that in the end we'll have to sit down and negotiate," Bergsma said. "Let's see if Boeing's supporters are still as enthusiastic about WTO compliance when their subsidy report will come out in summer."

The information from Novick

and Bergsma was reported

by The Associated Press.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com