EU appeals WTO ruling against Airbus

By Julie Johnsson
Posted July 21, 2010 at 5:40 a.m.

The European Union plans on Wednesday appealed a World Trade Organization ruling that Airbus SAS received $20 billion in illegal government subsidies that unfairly tilted the global aircraft market — to the detriment of Chicago-based Boeing Co. The appeal had been widely expected, and will likely prolong the already long-running dispute between the E.U. and U.S. over government funding to planemakers Airbus and Boeing.

Another panel of WTO judges is expected to issue an interim ruling soon in a counter-case brought by the Europeans against the U.S. and Boeing, claiming aircraft such as the 787 Dreamliner unfairly benefited from prohibited federal research and development grants.

The sweeping ruling against Airbus, spelled out in a 1,000-page final report made public last month, found that every Airbus jetliner from the A300 to the A380 benefited from launch aid totaling $18 billion, financing that was provided by European government at below-market rates. Airbus and its parent company, European Aeronautic Defense and Space Co., also received billions of dollars in prohibited infrastructure grants and equity infusions.

The E.U. plans a broad-ranging appeal that goes to the heart of the U.S. case against Airbus. The challenges range from the appropriate interest rates for the government loans Airbus received to the market fall-out for Boeing, said senior E.U. officials who spoke on the condition that they not be publicly identified.

The E.U. will question whether Boeing truly suffered economic harm as a result of the launch aid, contending that Airbus would have built the planes even without government funding. The appeal will argue that the WTO panel failed to show that individual subsidies caused Airbus to take the market-share lead from Boeing.

“The panel basically lumped all the subsidies together and said they have caused economic damage to Boeing,” said a senior E.U. official. “It’s a very crude approach that doesn’t establish a causal link.”

The appeal will also challenge the panel’s finding that the launch aid provided to the Airbus A380 super-jumbo jet by Germany, Spain and the United Kingdom is a prohibited export subsidy. The WTO confused expectations for the aircraft with a mandate to Airbus that A380 exports be given preference over domestic sales, said a senior E.U. official.

Under the WTO’s arcane rules, plaintiffs must demonstrate that there was a prohibited subsidy and that it caused economic damage. If there’s no such “causative effect,” there’s no case. Any export subsidies must be withdrawn from the market.

The E.U. appeal will also challenge the WTO determination that research and development support, equity infusions and infrastructure provided to EADS were illegal, officials said.

Barring a new trade agreement between the E.U. and U.S., the aircraft trade dispute could drag on for years, said Brian Havel, director of the International Aviation Law Institute at DePaul University’s College of Law.

“The E.U. is going ahead with an appeal and we could see the $20 billion amount reduced even further,” Havel told the Tribune last month. “If the WTO rules against Boeing, which is expected, then we’ll see an appeal in that case as well.”

But with competition for aircraft manufacturing looming in China and Russia, the two sides would be best-served by resolving their differences over the negotiating table and hammering out a new agreement.

“Neither company is going away,” Havel said. “What must be decided is whether their operations from here on out will confer real benefits to the world community in the form of cutting-edge products, or if they will become the basis for a needless, counterproductive and potentially destructive trade war between two of the world’s economic giants.”

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