WTO to issue landmark aircraft industry ruling

WTO to issue landmark aircraft industry ruling

Geneva: World Trade Organisation judges will rule on Friday for the first time on whether the European Union handed out illegal subsidies to Airbus in a verdict that could affect planemakers worldwide.

The three-member WTO panel is widely expected to agree with complainant

Washington that the billions of euros in “launch aid" Airbus received to build the A380 and other top-selling planes was anti-competitive and violated trade laws.

Their findings, to be distributed to US and European diplomats at about 1400 GMT, will set the markers for acceptable government funding in civil aviation and also colour trans-Atlantic relations at a sensitive time for the global economy and multilateral trade talks.

It also stands to impact Airbus’ strategy as it develops its next airliner, the wide-body A350 due in the next decade.

“This will likely be a fairly significant document," said Brendan McGivern, a partner with the law firm White and Case in Geneva, which has not been involved in either the Airbus case or a counter-suit by Brussels against US rival Boeing whose findings are due out in six months.

Trade lawyers expect Washington to lose that parallel case. That would leave both sides bruised as a result of the biggest and most commercially significant arbitration in WTO history.

The extent to which Airbus or Boeing come out cleaner than the other in the twin preliminary rulings will affect the dynamics of negotiations to settle their differences privately, which both sides have said they eventually want.

Business Impact

Friday’s preliminary Airbus report — expected to run to 1,000 pages or more — will not be made public for several months to give both sides the chance to review it. WTO panels virtually never change the substance of their reports before they are circulated to the public as final versions.

The WTO declined to speak about the size of the aircraft dispute or the number of staff assigned to work on it. "We never comment on specific disputes," spokesman Keith Rockwell said.

McGivern said the Airbus ruling would build on years of litigation on aircraft subsidies between Canada’s Bombardier and Brazil’s Embraer, companies that will be looking to the latest WTO findings with interest.

Upcoming industry players in China, Russia and Japan are also expected to pore over the complex ruling to inform their own decisions about how to finance their aircraft market expansion.

“This is a make-or-break case because it will set the standard for everyone who wants to be involved in free trade and develop and export aircraft without tariffs," said Doug McVitie, founder of the aerospace consultancy Arran Aerospace.

Boeing spokesman Tim Neale also said the report should have a direct impact on how planemakers do business.

“A strong, clear ruling on launch aid and other subsidies not only will ensure a fair and level playing field for Boeing and Airbus, but for all governments and companies that want to compete in the global commercial airplane market," he said.

Boeing claims Airbus got a cumulative boost of $205 billion from advantageous loans and other perks from France, Germany, Spain and Britain over two decades, giving it an unfair edge.

Airbus says the loans were fair and claims in turn that Boeing got illegal subsidies from US agencies including NASA plus big tax breaks from several states, worth some $24 billion.

“It is hard to see an overall winner emerging this week," an EU diplomat said. “We also have to wait until the Boeing decision to get a full picture."

Years could pass before the WTO arbitration process runs its full course and both sides are likely to appeal any decisions that challenge the way they do business.

Tensions from the aircraft dispute have raised concerns of a trade war between Brussels and Washington, though White and Case’s McGivern said it was unlikely their $700 billion a year commercial relationship would be put on the line.

“I think it would be an effort by both governments to try to quarantine Boeing-Airbus into its own discrete area and not have it affect the broader trans-Atlantic relationship," he said.

Northrop Grumman, the third-largest US weapons maker, said this week the Airbus case should not be mixed in with broader deals including a US tanker competition it is involved in alongside Airbus.

McVitie, a former Airbus executive, said he doubted either side of the Boeing-Airbus dispute would settle any time soon.

“They hate each other too much for that to happen. It is like a divorce gone wrong, times one hundred," he said. “I think it is down to hubris now. I am right and you are wrong no matter what anyone else says."