EU launch aid to Airbus clearly violates WTO rules

"Everyone does it, so let's be gentlemen and settle our dispute out of court." That's the gist of the arguments Airbus makes regarding the European Union-U.S. dispute over aerospace subsidies. Trouble is, everyone does not do it, if by "it" we mean the use of government "launch aid" to subsidize a private company in a manner that's inconsistent with the rules of the World Trade Organization.

European governments provide billions of dollars to Airbus each time it develops a new airplane. Every dollar of government launch aid that Airbus receives is a dollar less it needs to borrow from commercial lenders, or take from profits earned on sales of existing products — a fact that enabled Airbus to lower its prices and grab significant market share away from Boeing.

What's more, European government launch aid carries repayment terms other borrowers can only dream of. There is no repayment schedule of the kind imposed by commercial lenders. Repayment is pegged to airplane deliveries, which means Airbus has free use of the launch-aid money for considerable periods of time. Airbus begins repayment only when certain Airbus-defined delivery thresholds are met, and if those thresholds are never achieved, there is no obligation to repay the balance of the loan.

Government launch aid gives Airbus a significant competitive advantage, and it clearly is illegal under WTO rules.

Now, let's look at the U.S. practices the EU and Airbus allege to be "indirect" government subsidies to Boeing: government contracts, research grants and tax support.

Government contracts, including research contracts, are not illegal under WTO subsidy rules as long as the government is getting products or services in return for the money it spends. That has been the case with every contract Boeing has had with the U.S. government. In return for the payments received, Boeing has provided fighter jets, rockets, satellites, maintenance, training and other products and services to its government customers.

In no case has Boeing asked for, or received, government money to develop its commercial-airplane products. Boeing has fully funded with its own money all of the research and development costs associated with those products. As for tax support, the decision a few years ago by the state of Washington to lower the taxes it levies on aerospace companies to bring them more in line with the taxes levied on other industries is not an illegal subsidy by any WTO definition.

A handful of Airbus lobbyists, consultants and academics have raised another issue that is not a part of the EU case against the United States but which I will address here — and that is the issue of alleged Japanese subsidies to Boeing for the 787. Boeing's relationships with its Japanese suppliers are fully commercial in nature. Boeing has not received, and will not receive, any money from the government of Japan.

What's curious about the EU and Airbus arguments regarding these so-called "indirect" subsidies to Boeing is that all of the supports they talk about are supports Airbus itself receives. Airbus and its parent company EADS are large government contractors — and not just in Europe, but in the United States as well. Airbus and EADS also are big recipients of government R&D grants, for which European governments receive nothing in return.

Airbus and EADS take advantage of tax incentives in places like Alabama, Florida and anyplace else they are offered; and they use many of the same suppliers as Boeing in Japan, in Europe, in the United States and elsewhere. Maybe that is why the EU chose not to include the allegations against Japan in its case against the United States. Perhaps that also is why European officials have been reluctant to talk about new rules to govern such things as government R&D practices (unless, of course, they apply solely to the United States and not to Europe).

It is such unsubstantiated allegations and misleading statements about "indirect" government support that have made it so difficult to resolve the subsidy issue outside of the litigation both sides have brought to the WTO. The U.S. government and Boeing remain prepared to negotiate a settlement of this dispute. However, Airbus and its government supporters have shown great reluctance to give up the launch aid that has made Airbus so successful, despite the fact that the practice is clearly illegal.

One final point in closing: European launch aid sets a very bad example for other nations like China and Russia that have ambitions to be major players in the commercial-aerospace sector. Those countries are watching closely to see how this dispute plays out. It is in the long-term interests of both the United States and Europe to recognize the importance of, and fully comply with, WTO rules.