Battle for the Skies: Boeing-Airbus WTO Trade Dispute

By James Freirich
James Freirich is a guest writer for The Roundtable and a sophomore majoring in Finance at Boston College’s Carroll School of Management.

In recent weeks, the World Trade Organization (WTO) delivered a critical ruling on the Boeing-Airbus trade dispute - a dispute which bore its inception in 2004 [1]. Since the 1970 establishment of Airbus, the 2nd largest aircraft manufacturer in the world, Boeing, the world’s leading aircraft manufacturer, has faced steep competition and a challenge to its market share of the “Large Civil Aircraft” (LCA) industry [2] [3] [4]. Moreover, as the competition between these two aircraft manufacturing titans have intensified throughout the past few decades, so have their bilateral utilization of subsidies within the LCA market. Subsequently, as the United States (US) became increasingly concerned with the level of subsidies granted to Airbus by the European Communities (EC) over the decades following 1970, a bilateral Agreement on Trade in Large Civil Aircraft (TLCA) was created in July of 1992 to ensure fair trade by implementing quantitative restrictions on subsidies utilized within the LCA market [5] [6]. On October 6th, 2004 on behalf of Boeing, the US filed a trade complaint against the EC “alleging that the EC violated international trade agreements, primarily by giving launch aid to Airbus” [7].  During that same day, and on behalf of Airbus, the EC filed a trade complaint of their own against the US “alleging that Boeing received prohibited government subsidies in the form of tax breaks and preferential government contracts” [8]. (Kienstra, 571) By filing trade disputes against one another, the US and EC in turn withdrew from the TLCA. 

This did not come as a surprise because the TLCA could not provide remediation in the event of agreement violations. Furthermore, the TLCA mainly banned “all future production [direct] subsidies” and placed “a limit on development subsidies at thirty-three percent of total cost [9]”. Additionally, the TLCA limited “indirect subsidies to three percent of the turnover of civil aircraft manufacturers or four percent of their value in civilian sales [9]”. Since the TLCA could not provide remediation, the only effective means that the two parties could substantively employ to ensure compliance under the Dispute Settlement Body (DSB) became the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the GATT 1994 [10] [11].


According to the WTO’s May 15, 2018 ruling, Airbus has “failed to comply with the obligation to 'withdraw the subsidy' for the purpose of Article 7.8” of the SCM Agreement. Article 7.8 stipulates that, “where a panel report or an Appellate Body report is adopted in which it is determined that any subsidy has resulted in adverse effects to the interests of another Member (within the meaning of Article 5), the Member granting or maintaining such subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy” [12] [13] [14] [15]. It is estimated that the (potentially illegal) subsidies total $22 billion. Recent reports dictate that the ruling draws concern with the following subsidies granted to Airbus by the EC: “(i) ‘Launch Aid’/‘Member State Financing’ (LA/MSF) contracts; (ii) European Investment Bank loans; (iii) infrastructure-related measures; (iv) corporate restructuring measures (debt forgiveness, equity infusions and grants); and (v) research and development funding.” A ruling such as this now opens the door for US actions, retaliatory tariffs being one viable option [16] [17].

US Trade Representative (USTR) Robert Lighthizer responded to the Tuesday ruling by stating that “President Trump has been clear that we will use every available tool to ensure free and fair trade benefits American workers. This report confirms once and for all that the EU has long ignored WTO rules…Unless the EU finally takes action to stop breaking the rules and harming U.S. interests, the United States will have to move forward with countermeasures on EU products.” [18].


Dennis Muilenburg, CEO of Boeing, added that “this final ruling sends a clear message: disregard for the rules and illegal subsidies are not tolerated. The commercial success of products and services should be driven by their merits and not by market-distorting actions…Now that the WTO has issued its final ruling, it is incumbent upon all parties to fully comply as such actions will ultimately produce the best outcomes for our customers and the mutual health of our industry” [19].


In response to the recent WTO ruling, the European Union (EU) issued statements on May 17th, 2018 stipulating that they have “taken appropriate steps to bring its measures [subsidizing Airbus A350 and A380 models] fully into conformity with its WTO obligations, and to comply with the DSB's recommendations and rulings…the European Union has ensured full implementation of the DSB's recommendations and rulings, and has consequently eliminated any nullification or impairment attributable to non-compliance with those recommendations and rulings” [20]. On May 29, 2018, the EU issued a second statement regarding the WTO’s ruling stipulating a request for consultation as “the United States has expressed the view that the European Union has not yet fully complied with the recommendations and rulings of the DSB [21]. Thus, there is a ‘disagreement as to the existence or consistency with a covered agreement of measures taken to comply’ with the recommendations and rulings of the DSB.” As the US disagrees with the validity of a EC/EU elimination of harmful subsidies granted to Airbus, the matter of compliance is far from over. Though the US certainly has an upper hand on the EC/EU, the WTO has yet to rule out the harmful and adverse nature of the tax breaks given to Boeing for its 787 and 777X models by the state of Washington [22]. Thus comes the question everyone is asking: will there be a settlement or will this game of questionable subsidy use continue?


[1] Gates, Dominic. “WTO Ruling Opens Way for U.S. Tariffs over Airbus Subsidies.” The Seattle
Times, May 16, 2018.
https://www.seattletimes.com/business/boeing-aerospace/wto-ruling-opens-way-for-u-s-t
ariffs-over-airbus-subsidies/.
[2] Genter, J. T. “Airbus Agrees to Acquire a Majority of CSeries Program.” The Points Guy (blog), October 17, 2017. https://thepointsguy.com/2017/10/airbus-cseries-majority-acquisition/.
[3] Jeffrey D. Kienstra, Cleared For Landing: Airbus,
Boeing, and the WTO Dispute over Subsidies to Large Civil
Aircraft, 32 Nw. J.
Int'l L. &
Bus. 569 (2012).
http://scholarlycommons.law.northwestern.edu/njilb/vol32/iss3/4
[4] “Boeing: The Boeing Company: General Information.”
Accessed June 9, 2018.
http://www.boeing.com/company/general-info/.
[5] Id. 3. See Page 579
[6] Id. 3. See Page 580.
[7] Id. 3. See Page 570.
[8] Id. 3. See Page 571.
[9] Nils Meier-Kaienburg, The WTO's Toughest Case: An Examination of the Effectiveness of the WTO Dispute
Resolution Procedure in the
Airbus-Boeing Dispute over Aircraft Subsidies, 71 J. Air L. & Com. 191 (2006)
https://scholar.smu.edu/jalc/vol71/iss2/2. See Page 199.
[10]“AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES.” World Trade Organization. Accessed June 9, 2018. https://www.wto.org/english/docs_e/legal_e/24-scm.pdf.
[11] Wittig, Stephan. “The Airbus-Boeing Dispute: Implications of the WTO Boeing Decision.” Intereconomics 45, no. 5 (n.d.): 262–63.
[12] “Boeing: WTO Issues Final Ruling in 14-Year U.S. Case against Illegal Subsidies to Airbus.” Boeing, May 15, 2018. http://www.boeing.com/features/2018/05/wto-ruling-05-18.page.
[13] “EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE UNITED STATES AB-2016-6 Report of the Appellate Body BCI Redacted, as Marked [BCI].” World Trade Organization, May 15, 2018.
[14] Id. 13. See Page 16.
[15] Id. 10. See Page 236.
[16] Id. 12.
[17] “EC AND CERTAIN MEMBER STATES – LARGE CIVIL AIRCRAFT.” DS316. World Trade Organization, May 15, 2018. https://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds316sum_e.pdf.
[18] Id. 1.
[19] Id. 12.
[20] European Union. “WT/DS316/34.” World Trade Organization, May 17, 2018. https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=245742,245457,245345,245170,245169,245168,245033,233857,232926,232201&CurrentCatalogueIdIndex=2&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True.
[21] European Union. “WT/DS316/36.” World Trade Organization, May 29, 2018. https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=245742.
[22] Id. 12.
Photo Credit: Flickr User Oscar Lammers Photography

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