U.S. ups the ante in Boeing-Airbus subsidy saga

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Airbus plane
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Airbus and Boeing — or, more reasonably, Brussels and Washington — are still at it, haggling over subsidies both sides have received over the decades.

The action and counteractions, originally started by the U.S. to stem what it saw as a rising European rival to Boeing’s dominance, has been rumbling on for 16 years. Both sides are at fault, the WTO has ruled.

The latest development, as Reuters recently reported, is the WTO has ruled that European government loans to Airbus were unfairly subsidized through low-interest rates while Boeing received unfair support from tax breaks.

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Airbus and Boeing again take center stage

Both sides say they have remedied past flaws and are now in line with WTO rules.

However, the U.S. side feels loans still on Airbus’s books continue to provide unfair support. Furthermore, Washington thinks the European planemaker should repay interest on historic loans set at below-market rates.

Brussels says if that’s the case then Boeing should repay previous subsidies in the form of tax breaks.

The impasse has led to Washington applying $7.5 billion of, tariffs, that most favored tool, on E.U. goods. Meanwhile, the E.U. is asking the WTO later this month to apply $4 billion of tariffs on U.S. goods.

The issue of government support

The U.S. action throws light on the various practices of governments to support national or regional champions.

For Airbus, the case goes that the E.U. provided loans at below-market rates on what are clearly favorable terms. Under those terms, Airbus repays government loans only when its sales exceed a certain threshold. Meanwhile, loans for weak-selling planes, such as the A380 superjumbo, which the planemaker is prematurely curtailing, can be waived partly or fully.

In its defense, Airbus says the disputed system favors taxpayers because loan repayments on successful jets, such as the A320, far outweigh amounts written off on jets that fail to reach sales targets.

However, if Airbus were to go to the commercial market, it would not get funding on such risk-sharing terms on competitive rates.

The U.S. side is demanding such discounted rates move to commercial levels. Furthermore, the U.S. demands Airbus repay “underpaid” interest on past loans. That figure is about $10 billion.

Meanwhile, the E.U. has also won support at the WTO for its case. It claims Boeing has received $23 billion in subsidies in the U.S. The subsidies, mainly for research and development projects, come particularly from Washington state in the form of tax breaks.

Tax breaks and loans

State tax breaks have now been wound down. This may have been a contributing factor to Boeing’s decision to move production of the 787 from Washington state to South Carolina this month. (However, the main imperative is probably consolidating production in a non-unionized plant, with production volumes hit by the pandemic.)

The same is true for Airbus’ decision to renegotiate launch aid loans granted by France and Spain for the A350 to commercial terms.

Both sides are responding to the results of previous WTO rulings and changing their practices going forward.

Unusually, however, the U.S. is also looking for a retrospective penalty in the form of interest loan repayment.

That is an approach that is unlikely to meet with agreement in Brussels. As such, the move could prolong and maybe even escalate the current round of tariffs and counter-tariffs.

Producers and consumers with absolutely no connection to the aerospace industry in both regions are feeling the impact of tariffs. As such, those companies are losing business in the process.

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