US to Bring Airbus Before WTO

[onedomino]

Aircraft-Subsidy Battle Is Going Back to WTO
By Paul Blustein
Washington Post Staff Writer
Tuesday, May 31, 2005; E01

http://www.washingtonpost.com/wp-dyn/content/article/2005/05/30/AR2005053000977.html

The United States and the European Union are headed back to high-stakes international litigation over subsidies to Boeing Co. and Airbus SAS, after talks aimed at settling the dispute broke down yesterday.

U.S. Trade Representative Rob Portman issued a statement announcing Washington's intention to press ahead with a case against the E.U. at the World Trade Organization that he will ask the Geneva-based trade body today to appoint a panel of judges. The U.S. case, which alleges that European governments illegally subsidize Airbus, had been held in abeyance for several months pending an attempt to reach a negotiated agreement, but Portman said the Europeans "are forcing our hand" by refusing to halt government aid for new Airbus jets.

The E.U. indicated that it is prepared to restart its own WTO case against Boeing, which alleges that the Chicago-based aircraft maker also benefits from illegal subsidies, including some provided indirectly through military contracts. Peter Mandelson, the European trade commissioner, issued a statement calling Portman's announcement "surprising and disappointing" and said he will make the E.U.'s position known today, but it appeared likely that Brussels would follow through on its long-standing threat to respond in kind. "That is a consistent position we have had," said Anthony Gooch, the E.U.'s spokesman in Washington.

The two sides had been trying since January to reach a settlement because the potential ramifications of pursuing their respective WTO cases to the end appear so grim.

The aircraft industry provides thousands of high-skill, good-paying jobs on both sides of the Atlantic. Failure to resolve the clash amicably could undermine prospects for cooperation between Washington and Brussels on other issues, in particular the WTO's Doha round of negotiations aimed at lowering trade barriers worldwide.

In an unusual move to damp down worries about the Doha round, Portman and Mandelson issued a joint statement shortly after Portman's initial announcement about the airplane matter. "We remain united in our determination that this dispute shall not affect our cooperation on wider bilateral and multilateral trade issues," the statement said. "We have worked together well so far, and intend to continue to do so."

Even if the aircraft fight doesn't poison other aspects of transatlantic relations, however, it could result in an outcome disastrous for both sides, with each found guilty of subsidizing its aerospace champion. When a country is found to be violating international trade rules, it must either stop the offending practice or its exports may be subject to punitive duties by the complaining country. Indeed, uncertainty about such a ruling could make it difficult for both aircraft firms to sell products they are now developing, some analysts fear.

The two sides have operated since 1992 under an agreement allowing Airbus to receive a certain amount of "launch aid" -- loans from the British, French, German and Spanish governments to finance the cost of developing new planes. But that arrangement came under strain in the past several years as Airbus passed Boeing in worldwide sales, and the Bush administration escalated the dispute by filing its WTO case in October 2004, prompting an immediate counterclaim by Brussels.

Hopes arose in January that the two sides could avert a mutually destructive confrontation when they said they would try to strike a deal aimed at ending all subsidies. But prospects for such a pact have dimmed as Airbus has begun angling for more than $1 billion in launch aid for the A350, a midrange plane designed to compete against Boeing's planned 787 Dreamliner. Sharp words and public threats have been lobbed from both Washington and Brussels.

In a bid to keep the matter from returning to the WTO, Mandelson proposed in a telephone call with Portman on Friday that each side cut its subsidies by a significant amount with further cuts to come later. But that overture only irritated the U.S. side when the Europeans disclosed it to the press over the weekend.

"Unfortunately, at this point, the E.U. is no longer willing to hold off on launch aid, and has only proposed to reduce subsidies not end them," Portman said in his statement. "We continue to prefer a negotiated solution, and we would rather not have to go back to the WTO. But the E.U.'s insistence on moving forward with new launch aid is forcing our hand."

WTO cases take many months, and sometimes years, to adjudicate, leaving the combatants many opportunities to settle, a point that Portman's statement emphasized.

"We still believe that a bilateral negotiated solution is possible," Portman said. "But the negotiations won't succeed unless the E.U. recommits to ending subsidies."

-

 

[onedomino]

Ferme la Airbus
By Bruce Fein

http://washingtontimes.com/commentary/20050606-101100-1301r.htm

Lavishly subsidized Airbus, the European Union's flagship company, exemplifies Old Europe's descent into effeteness. Like Athens before its decline and fall, Old Europe craves security and shuns risk.

Thus, the governments of France, Great Britain, Germany and Spain have showered Airbus with a staggering $15 billion in risk-free launch aid to leapfrog the latter over Boeing in large commercial aircraft sales.

As a 1997 French Senate report elaborated: "Advances made to firms need only be reimbursed if the program is successful. In the event of failure, the public money is lost, and the advance becomes a subsidy, a sort of insurance policy for the company against industrial risk."

Last week, the United States filed a complaint before a World Trade Organization tribunal challenging Airbus' massive government support. They are flagrantly illegal under the WTO Agreement on Subsidies and Countervailing Measures by threatening Boeing's viability and pivoting on Airbus' exports. In 1999, a WTO panel reviewing a complaint by Brazil held Canadian aircraft financing with launch aid-type terms was an illegal export subsidy. Old Europe might ultimately gain, however, if a defeat over Airbus subsides awakens it from deadly stupor. It might come to understand the turtle's lesson: Progress is made only by sticking the neck out.

Old Europe shunned the risk of antagonizing Adolf Hitler at Munich in 1938. Vichy France collaborated with the Third Reich because fearful of risking a more oppressive Nazi occupation. After World War II, Old Europe nationalized private enterprise and cosseted workers to escape marketplace risks. The free competition North Star of the Marshall Plan made a cameo appearance, but its intellectual influence quickly faded.

Colbert's mercantilism eclipsed Adam Smith's free enterprise. Old Europe enacted laws crippling the ability to lay off employees or to compete with government-controlled businesses. The welfare state was embraced in all its moods and tenses. Workers were guaranteed plush pensions, health care, undemanding hours, long vacations and handsome unemployment or disability compensation. Corporations were guaranteed subsidies or other public largess to escape bankruptcy and create artificial jobs. Old Europe's unemployment predictably jumped to double digits. Its economy slowed from allegro to adagio.

During the Cold War, Old Europe depended on the United States to deter a Soviet invasion or "Finlandization." After the Cold War, Old Europe relied on the United States to address twin convulsions on its doorstep: Bosnia and Kosovo. But for Great Britain, Old Europe has generally played spectator to the United States war in Iraq. Indeed, Old Europe today seems no more eager to risk its comforts than it was at Munich more than 60 years ago. Its culture features no Horatio Alger heroes.

Centuries ago, Adam Smith's "The Wealth of Nations" scorned Airbus-type subsidies: "The bounty to the white-herring fishery is a tonnage bounty; and it is proportioned to the burden of the ship, not to her diligence or success in the fishery; and it has, I am afraid, been too common for vessels to fit out for the sole purpose of catching not the fish but the bounty."

Airbus is a carbon copy. Chief Executive Officer Noel Forgeard recently confessed: "The [new] A350 is easily financeable by Airbus without launch aid because it is derivative of an existing aircraft, but as long as there is refundable launch aid [approximating $1.7 billion] available, we will apply for it."

In any event, what's good for Airbus is not necessarily good for Old Europe. The $15 billion in launch aid raised by taxes thwarts more productive capital investment by the private sector. The aid also gives birth to commercial aircraft unresponsive to consumer preferences.

Thus, Airbus has enjoyed $6.5 billion in government assistance to develop the A380, which competes against the Boeing 747 jumbo jet. But the superjumbo aircraft may nevertheless go the way of the Concorde. Real economic resources may have been squandered because free-market incentives did not discipline the A380 investment.

Airbus is now bettering the instruction of its Old Europe benefactors. US Air and America West Airlines (AWA) have agreed to merge. But the merger depends on $250 million in Airbus financing. It will be forthcoming, however, only if AWA agrees to purchase 20 A350s. The package deal constitutes a virtual gift of the Airbus aircraft to make a first sale.

Airbus' gross distortion of the market handicaps Boeing's ability to compete and to flourish. At present, Airbus is present in every airplane market segment above 100 seats, has surpassed Boeing in orders, deliveries and order backlogs, and has captured a stunning 54 percent market share. In 1999, in contrast, Boeing was the industry eagle, holding 67 percent of the large commercial aircraft market. Should Boeing be crucified on a cross of Airbus subsidies to propitiate Old Europe's aversion to risk?

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[no1tovote4]

Here is my question:

We ignore their decisions when it comes to decisions against us, so why bring anything before them at all? This shows a dichotomy, we want to beat somebody over the head with an ineffective organization?

 

[Merlin1047]

Here is my question:

We ignore their decisions when it comes to decisions against us, so why bring anything before them at all? This shows a dichotomy, we want to beat somebody over the head with an ineffective organization?

Exactly what I was wondering. Every time we pursue such an avenue we legitimize the idiotic view of some, including a couple of fools on the SCOTUS, that the United States should subordinate its sovereignty to some world governmental body. Not only that, but there is no effective redress of grievances here anyway since any party is free to ignore the rulings of the WTO with impunity.

Simple solution - tell the damn french that no Airbus of the model in dispute will be granted landing rights in the United States. Then watch what happens.

 

[onedomino]

Here is my question:

We ignore their decisions when it comes to decisions against us, so why bring anything before them at all? This shows a dichotomy, we want to beat somebody over the head with an ineffective organization?

We ignore WTO decisions against us? In November 2003, the WTO ruled against US steel tariffs. In December 2003, Bush dropped the steel tariffs. Merlin's plan to prevent illegal Airbus subsidies by denying the offending Airbus models (that would be all of them) landing rights in the US would only lead to a trade war, since the Euros would undoubtedly reciprocate and prevent Boeing aircraft from landing in Europe. We are trying to promote fair competition. The purpose of the WTO is to prevent trade wars.

WTO rules against US steel tariffs: http://www.asil.org/insights/insigh120.htm

Bush drops US steel tariffs: http://www.cleveland.com/indepth/steel/index.ssf?/indepth/steel/more/1070620637245102.html

 

[no1tovote4]

We ignore WTO decisions against us? In November 2003, the WTO ruled against US steel tariffs. In December 2003, Bush dropped the steel tariffs. Merlin's plan to prevent illegal Airbus subsidies by denying the offending Airbus models (that would be all of them) landing rights in the US would only lead to a trade war, since the Euros would undoubtedly reciprocate and prevent Boeing aircraft from landing in Europe. We are trying to promote fair competition. The purpose of the WTO is to prevent trade wars.

WTO rules against US steel tariffs: http://www.asil.org/insights/insigh120.htm

Bush drops US steel tariffs: http://www.cleveland.com/indepth/steel/index.ssf?/indepth/steel/more/1070620637245102.html

He didn't drop the tarrifs due to the WTO decision, that is patently ridiculous. It was an attempt at getting larger French support for the actions we were taking, as well as getting the right-priced steel into the US after he got the Steel Union votes for putting the Tarrifs into place and a Majority for his party. He didn't want France and Germany adding Tarrifs to our stuff in retaliation.

There are far more decisions against the US from the WTO that are totally ignored to make the logic leap that this one time the US decided to pay attention to the WTO, it is easier to follow the money and see why the decision was made and use Occam's Razor, than it is to make such a logic leap.

 

[onedomino]

He didn't drop the tarrifs due to the WTO decision, that is patently ridiculous.

Yeah right. It was just a coincidence that Bush dropped the steel tariff one month after the WTO ruled against the US and just prior to the 15 December deadline imposed by the EU and others for retaliatory action against US products: "The European Union, Norway and Japan threatened to retaliate with fees on American goods if Bush did not remove the tariffs by Dec. 15." http://www.cleveland.com/indepth/steel/index.ssf?/indepth/steel/more/1070620637245102.html The retaliatory actions would have been permitted under trade laws as a consequence of the WTO ruling against America. You were wrong when you said, “we ignore their decisions when it comes to decisions against us.” Since the US is one of the principle exporters on the planet, it has far more to lose from ignoring the WTO (which it helped to set up) than it does from playing by the rules. If the US had ignored the WTO ruling regarding steel tariffs, then what recourse (other than trade war) would it have had regarding the Airbus dispute? The next country that the US is likely to haul before the WTO is China regarding the textile industry.

 

[Merlin1047]

Merlin's plan to prevent illegal Airbus subsidies by denying the offending Airbus models (that would be all of them) landing rights in the US would only lead to a trade war, since the Euros would undoubtedly reciprocate and prevent Boeing aircraft from landing in Europe. We are trying to promote fair competition. The purpose of the WTO is to prevent trade wars.

Maybe it's time for a trade war. Personally I'm confident that we'll come out ahead in the long run.

I just tend to take a more hard-nosed approach than you seem to favor. Also I don't believe that handing authority over to some "world body" does our nation any good in the long run. I freely admit that when it comes to foreign policy I'm somewhat akin to Atilla the Hun.

I don't fear a trade war with anyone except Japan or China. But even here, after a period of hardship and adjustment, it might serve our best interest. For example - much of our heavy industry capability which existed into the early 1960's is gone. It's in Japan now. If we ever get into another major conventional war, we may not be able to out-produce our enemies like we did in WWI and WWII. If Japan suddenly refused to provide us with steel, we would just have to revive our own industry - and we can do it. If China refused us textiles, our own industry would mushroom - we'd just have to pay a bit more for underwear, socks, etc. And who would suffer in the long run? The very folks who refuse to trade with us. We have one hell of a clout in the import arena and we should not be afraid to use it when it suits our purposes. We should not be the flaccid, pacifistic dumping ground for products from anywhere. We should be very particular choosing our trading partners.

There are new markets all over the place. Eastern Europe, South America, Russia, even the Middle East. We just need to get off our national ass and go out like a door to door salesman and develop new relationships and new trading partners.

I see strength in unilateral action and I see weakness in going to the WTO to whine that the froggies are not treating us fairly. Screw them. I say it's time to flex a little muscle in the world and let Chirac et al stew in their own juices for however long it takes.

 

[padisha emperor]

After the Bourget : Airbus : 341 commands
Boeing : 146 commands.

And the first A-380 will be for Singapore Airlines

(but the new 777 - I believe it's the "name" of the new Boeing - is pretty nice .

(the new Falcon 7X from Dassault is really good too. I believe that the Boss of Budweiser commands one of it)

 

[Huckleburry]

Merlin,
What an odd thing to say. You are treating a trade war as if it were a conventional war by other means. It is not. A trade war would negatively affect all of us. There would be no winner as the opportunity cost of destroying a liberal trade regime would surely outweigh any benefit we may gain from protectionism. We can not tell the WTO to fuck off and then expect the rest of the world to carry on liberalizing trade through bilateral agreements that is simply not the way the system operates.
Additionally the WTO more often then not issues decisions that come out in our favor (Fish nets in Mexico ring a bell?). Why would we want to destroy an institution that we built, that servers our (and everyone else's) interest because they occasionally make us play by our own rules.
Lastly a weak Europe is not in our interest either. European stability is essential to tackling some of the more difficult economic and political challenges to come. Specifically in the Middle East, and China. A weak Europe would only further tax an over taxed American apparatus.