Happy Labor Day to those of you in the States. Though we had intended not to write much today, we couldn’t help ourselves and thought it might be fun to examine the recent Airbus/Boeing preliminary findings in the largest ever WTO case. We have created this post as an interview between MetalMiner and our own, Stuart Burns:
Editor: Are both sides guilty of violating WTO rules in your opinion?
Stuart: Yes, in the strict definition of the terms I believe both sides are guilty. The European side is more blatant about it in terms of providing subsidized loans and so on but that’s a reflection of the socialist mentality in Europe. They see Airbus as a national (regional) champion and a major employer/center of technological excellence/symbol of European cooperation, and therefore entirely deserving of support. In the early days remember they were very much the David to Boeing’s Goliath and would never have got off the ground without support. But it is unquestionably a good thing that they did. Aircraft today are better because of the competition. Boeing gets all kinds of tax breaks and the support of government funding for defense programs that are not quite as obviously subsidy but equally valuable. It’s far from black and white.
Editor: Is this all a waste of time given that there are only 2 large commercial aircraft producers and each has filed a WTO case against the other?
Stuart: Yes, I think this is a total waste of time. This situation started largely with Boeing complaining about the support given to Airbus and in true American style the first resort is to the lawyers. Airbus has, in large part, brought a case against Boeing in the style of the best form of defense is attack. With such staunch government backing, neither side is going to achieve an outright win and neither side is going to be seen to back down. If support is removed in one area it will reappear in another. If business was booming for them both I wonder if we would see quite so much energy poured into these cases ¦Editor: Would this problem be solved if both the EU and the US created a uniform “assistance” program on both sides of the pond to develop new aircraft?
Stuart: Well that’s certainly one solution and has a lot to commend it. To be sure, if Airbus and Boeing do not receive state support in one form or another they will lose their dominance of the civil aerospace market in the years to come. Watch China – it may be another 10 years off but they have aspirations to be major airplane builders too, and they won’t hesitate to provide state aid by the bucket full.
Editor: What, if any, are the global supply chain ramifications to this initial ruling against Airbus?
Stuart: It remains to be seen. It will have put a shudder through the supply chain I don’t doubt but then again, the whole industry has been having a torrid time for the last two years due to launch delays, production problems, and now falling sales and cancellations.
Editor: What implications, if any, do you think this WTO case will have on other metals related cases before it (e.g. China’s export ban of rare earths?)
Stuart: Probably none, there are dozens of WTO cases brought each year and most of them are fudged to achieve a solution both sides are willing to live with. I have to say I have some sympathy with the Chinese on the rare earths. If the US didn’t want to export lets say Molybdenum, because it decided it needed all it could make for its domestic consumption you wouldn’t hear a word raised domestically against the decision. The rest of the world needs to develop rare earth sources to replace the Chinese, and if necessary provide tax breaks or other support to ensure they are viable. Clearly rare earths are critical strategic metals and the west needs to shore up its supply. I can’t see how the WTO can force China to export them though. They have an unfortunately justifiable defense.
Editor: Subsidies are involved with many WTO cases and serve as a major piece of the US domestic steel industry’s argument against (mostly) Chinese steel products (though some from other countries as well). On the basis of
your answers above, what can you say about the role of subsidies as they apply to the steel industry?
Stuart: Subsidies take many forms. The steel industry has long complained both justifiably and at times unjustifiably that overseas competitors receive subsidy in one form or another. Currency manipulation in which the Chinese have clearly been engaged in for the several years represents a justifiable argument, in my opinion. That has served as a massive subsidy to their export industries in general and steel in particular. I would sooner see the US taking on China over that issue than taking on Airbus. At the end of the day, we are better off with two major airplane makers. We don’t need China to be boosted to the position of the world’s biggest steel producer.
But what do you think? Leave a comment.