Transcript Document

US vs. EU.
Airbus – Boeing Subsidies Case.
(Pending)
Kurt Kasun
Tarek Khedr
Michelle Lammers
Sandrine Mabya
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US vs. EU: Airbus – Boeing
Largest Legal Case in WTO history.
 US feels money given to Airbus is illegal.
 EU feels Boeing has benefited from unfair support
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Commercial Jetliners
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Chicago Based Boeing
France Based Airbus
Only two manufacturers of large commercial jetliners.
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Why Such a Big Deal??
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Control of the market
Illegal Subsidies
WTO is being tested
Canada and Brazil
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The 1992 Agreement
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Under the 1992 agreement, the US had
recognized Airbus, founded in 1970 with
support from several European countries
On October 6, 2004, the US complained to
the WTO that the European governments
have broken trade rules with its government
loans to Airbus, including $ 3.2 Billions for the
super jumbo A 380
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The U.S. Boeing Case
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The U.S. claimed in its WTO complain last
October that Airbus had received more than
$15 Billion in government loans amounted to
illegal subsidies under global trade rule.
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The US and EU decided last December to try
for a settlement of the aircraft issue outside
the WTO to avoid bruising their 400 Billion-ayear trade relationship.
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The U.S. Boeing Case
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As part of the agreement, both US and EU
accepted that neither carrier will seek launch
aid during three-month negotiations.
The launch aid was spelled out in the 1992
agreement. Under the deal, the European
governments could finance one-third of the
cost of any aircraft Airbus develops
However the negotiations will have to settle
the tricky question of which of these subsidies
will be prohibited, actionable or permitted
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The U.S. Boeing Case
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Unfortunately, the US has withdrawn
because of the attempt from the EU to
broaden the scope of negotiations
At stake may well be Boeing $22Billion-a-year commercial aircraft
business, which for the first time in 2003
sold fewer passenger jets than Airbus
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The U.S. Boeing Case
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Airbus overtook Boeing in 2003,
becoming the first manufacturer in the
world’s $ 50 billion airliner market.
The U.S. argued that the growth of the
Airbus indicates that there is no more
need for aid that was justifiably at the
startup industry
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The U.S. Boeing Case
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Europeans have justified subsidies to Airbus
as necessary to an infant industry
Boeing has long asserted that Airbus has an
unfair advantage because it gets government
money and now that it does not need money
because it took the lead in the commercial
aerospace business in 2003 delivering 305
commercial planes while Boeing delivered
281,whereas Boeing in 1999 had delivered
more than 600 planes.
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The Airbus Side
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In October 2004, the United States said
Airbus received more than $15 billion in
government loans since 1967, helping it
overtake Boeing as the world's largest
airplane maker by sales.
According to U.S. estimates (also hotly
disputed), Airbus has used $15 billion in
subsidies to build its global aircraft market
share from 30 percent to near 60 percent.
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The Airbus Defense
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Airbus has been receiving "repayable launch
aid" in the form of commercial loans that it
pays back to the government as it sells
airplanes
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The Airbus launch aid causes less trade
distortion than the Boeing aid, according the
industry analysts
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Airbus Challenges Boeing
Subsidies
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R&D subsidies: $20B
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Tax break subsidies: $3.2B
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From 1992, Boeing has received R&D grants worth more
than $20 billion, mostly through NASA and the Pentagon.
Washington state will give Boeing tax incentives worth
$3.2 billion over 20 years.
Infrastructure improvement subsidies: $4.2B
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Washington State has dedicated $4.2 billion in subsidies
for physical improvements of Boeing plants and
infrastructure.
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Boeing Subsidies, cont.
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Foreign Sales Corporation: $200M annually
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Up to now, Boeing receives about $200 million a year
through a federal tax loophole called the Foreign Sales
Corporation program, which has been ruled in violation of
WTO rules.
Japanese Launch Aid: $1.6B
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Boeing has received Japanese launch aid of $1.6 billion
thus far to build the wings for its new 787 Dreamliner.
In contrast to the E.U. investment in Airbus, none
of these subsidies needs to be repaid
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Request for
Consultations
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Possibly precipitated by politics of 2004 US
presidential election
US files first in early October, followed hours later by
the European Communities counter filing
Both site subsidies inconsistent with obligations
under the SCM Agreement and GATT 1994
US principally sites “launch aid”
EC sites:
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State and local subsidies
NASA, DOD, and other R&D subsidies
FSC/ETI subsidies
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Détente in
January
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On January 11 both sides agreed to negotiate
the phasing out of subsidies over a 90-day
period
Agree to create “fair market competition” for
the development and production on large
civilian aircraft made in the US and the EU
Efforts motivated in part to sooth relations in
preparation for Bush’s European tour
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Ides of March
Spell High Drama
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On March 18 the spurious details of contentions
discussions between Zoellick and Mandelson are
made public
The US went public first
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The EU wants to conclude the talks quickly so it can start on
the A380 to compete against Boeing’s new 787
USTR voices displeasure over EU seeking to broaden the
terms of the January agreement
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EU wants to include Japanese subsidized production of Boeing
787 fuselage
EU wants to bring FCS into the deal
US also accusing EU of backtracking on commitment to cut
subsidies
EU wants ‘Cast-Iron’ guarantee
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Are Cooler
Heads Prevailing?
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March 21, Mandelson:
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“The ball is in America’s court…I’m looking for
clarification of the US position.”
“US threats are premature and unnecessary.”
Zoellick: “From my last conversation with
Mandelson, I do not see the probability of
reaching fulfillment in the time we set forth.”
The clock is ticking…one week away from the
deadline
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Resolution Scenarios
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Agree to extend consultations beyond 11 APR deadline
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Dynamics make an out-of-court settlement unlikely
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WTO oversee further consultations in Geneva
Either side could ask for a panel of judges to hear the case
High tech, high-paying jobs at stake for both
Boeing in tough shape rocked by scandal and losing market share
Airbus has been a tremendous successful industrial policy for the
EU
Perhaps they could agree to binding arbitration by a third-party
(John Major and Frank Carlucci or Cap Weinberger)
Odds are WTO would find both guilty and levy sanctions on both
Teal Group analyst that the outcome may depend on who is able
to show it has been hurt
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Broader Issues
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Outsourcing becoming increasingly global
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Much of the Boeing 787 is being constructed with the JADC
Both Airbus and Boeing outsource to Asia and Latin America
making the case global and raising the stakes
Large portions of engineering for Boeing handled by Russian
BDC
Concerns that the conflict will infect the rest of the
trade agenda, Doha Round
If sanctions are levied and ignored, the credibility of
the WTO would be damaged
$400 Billion trade relationship between the US and
EU is at stake
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Sources
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“Boeing chief hopeful on U.S., EU subsidy talks,” Thomas Mulier, Bloomberg
News, February 18, 2005
“Not an Issue for the WTO” Peter Mandelson, Washington Post, 1 April 2005
“The Big Blowout; Why the Airbus-Boeing case could wreck the WTO, and how
to stop it,” Jeffrey E. Garten, Newsweek International, April 4, 2005
“An ill-timed spat,” The Economist, March 26, 2005
“Why the Airbus-Boeing case would wreck the WTO, and how to stop it,” Jeffrey
E. Garten, Newsweek, March 27, 2004
“See you in court,” The Economist, March 16, 2005
“Russians rally to Boeing’s cause,” Nick Cook, Financial Times, April 2, 2005
“Boeing-Airbus talks fall apart,” James Wallace, Seattle Post-Intelligencer,
October 1, 2004
EU Demands Clarification on Boeing-Airbus,” Constant Brand, AP, March 21,
`2005
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Sources
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“Boeing vs. Airbus: Time to Escalate,” Stanley Holmes, BusinessWeek
Online, March 22, 2005
“US Seeks Return to Boeing-Airbus Talk,” Dow Jones Newswires,
March 21, 2005
“Battle over Boeing, Airbus shows thorny relations,” Dow Jones
Newswires, March 21, 2005
U.S.,E.U. Take Boeing, Airbus Dispute WTO. The Seattle PostIntelligencer, October 7,2004
Blustein, Paul. U.S. Files Grievance Over Airbus With WTO:E.U.
Responds With Boeing Complaint. October 7, 2004
International Trade; U.S., E.U Complain of Aircraft Subsidies. October
28,2004
http://www.bloomber g.com/apps/news
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