Boeing, Airbus disagree on impact of WTO subsidy ruling

The World Trade Organization (WTO) ruled Tuesday that most of the past loans given by European governments to develop new Airbus airplanes were illegal subsidies, prohibited under international trade rules, according to people familiar with the confidential ruling.

Those ruled illegal include older loans that have subsequently been repaid, but also include launch aid still outstanding, for the A380 superjumbo jet and other airplanes.

However, Airbus and Boeing were poles apart on the ruling's likely impact, which was shrouded by the confidentiality of the legal details.

The decision of the WTO panel, on a case going back to 2004, won't be made public until it is translated into all the languages of the WTO member states, which is likely to take months.

Most important for Boeing is whether Airbus can continue to get launch loans in future.

Hailing what it called a "powerful, landmark judgment," Boeing in a statement criticized the European governments' declared intention to provide new launch loans for the forthcoming A350 jet. It called on Airbus and the European governments "to change course and fully comply with the WTO's clear ruling."

But Airbus vigorously disputed the significance of the ruling and said the A350 launch aid will go ahead as planned.

Allan McArtor, chairman of Airbus Americas, said in an interview that the WTO decision doesn't rule out future launch aid.

While conceding the panel concluded "most" past Airbus launch loans were prohibited subsidies, McArtor said the ruling confirmed "launch aid per se is not a prohibited subsidy and that governments loaning money on a reimbursable basis is a perfectly acceptable way for governments to support industry."

The WTO panel also found "there was no material injury to Boeing in market share, in jobs, in pricing, in profitability. It was specific on all these points," he said.

In a statement, Airbus asserted flatly that "possible future funding for the A350 is not affected in any way by today's report."

Four European governments have pledged more than $4 billion in launch aid to help Airbus build its A350, a new mostly composite airliner that will compete with Boeing's 777 and its 787 Dreamliner.

"If the U.S. wanted to attack the A350 loans, they'd have to file another case with the WTO," McArtor said. "There will likely be a repayable loan situation with the member states, which they have agreed to."

Beyond a written statement, Boeing didn't comment for the record, citing the confidentiality of the ruling.

But an industry source familiar with Boeing's view of the case dismissed Airbus' reading of the report as a "deceptive" parsing of words.

The source, who asked not to be identified, said launch aid could theoretically be acceptable to the WTO — if government loans were granted at commercial interest rates. But in that case, the U.S. would have no issue with it.

And he said a finding of "no material injury" on U.S. industry doesn't preclude other adverse effects that are likely part of the WTO finding.

Carol Guthrie, assistant U.S. Trade Representative (USTR), said the A350 was not specifically cited in the ruling because the case dealt only with specific past subsidies identified by the U.S. But she said that doesn't mean there's no consequence for A350 launch aid.

"Certainly reasoning and conclusions in the final report could be expected to be relevant to the WTO-consistency of launch aid for the A350," Guthrie said.

An interim ruling on a European countersuit over alleged billions in U.S. subsidies for Boeing is expected this summer.

Politicians in Washington, D.C., were briefed Tuesday by the USTR office.

Sens. Patty Murray and Maria Cantwell of Washington joined Sens. Sam Brownback and Pat Roberts, both of Kansas, in linking the WTO decision to the Air Force refueling-tanker contract, even though the Pentagon has formally stated it will not take that into account in its tanker selection.

Airbus parent EADS has asked the Air Force for more time to prepare a bid for its A330; industry sources said Monday company officials believe if they get an extension, they may be able to undercut Boeing on price.

"The U.S. should make it clear that we aren't going to allow a low-bid contract from an illegally subsidized airplane," Cantwell said.

U.S. Rep. Norm Dicks, D-Bremerton, said "EADS must immediately curtail these subsidies going forward, and in fairness it should be required to repay the illegal assistance."

Generally, repayment of illegal loans is not part of the WTO process. Rulings are intended to affect only future behavior and cannot entail retroactive penalties.

But in this case, if the illegal behavior is upheld after a likely appeal, the question of what Airbus must do is murky and contentious.

Airbus was granted $4 billion in A380 loans nearly a decade ago, but most of that is still outstanding debt because only 26 of the slow-selling giant airplanes have been delivered.

Lawyers for Boeing have argued this unpaid debt is still distorting the market, so to comply with this ruling the A380 loans would have to be renegotiated at commercial interest rates.

However, any remedial action by the Europeans will come only after a long appeals, arbitration and negotiated compliance process that will likely take years.

Deen Kaplan, a partner with Hogan & Hartson, a Washington, D.C., law firm that has a close consulting relationship with Airbus, said the U.S. and the European Union both have consistently argued that the only actions affected by a WTO ruling are those starting after that long process ends.

The WTO in 2000 ruled that the U.S. Foreign Sales Corporation (FSC) tax benefit for companies was a prohibited subsidy, but it took four years before it authorized the EU to impose retaliatory trade sanctions.

Boeing was still taking the FSC tax benefit as late as 2005 before the U.S. finally complied with the WTO ruling in 2006.

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