The 1992 Large Civil Aircraft Agreement (LCAA) was intended to limit and eventually eliminate Europe’s support for Airbus in return for the U.S.
dropping a pending GATT Subsides case. These events preceded the founding of the WTO. The agreement was never intended to balance European Subsides
against the defense spending of the United States. Defense spending as I pointed out in part I is not a subside. At any rate, the defense contracts of
both companies are nearly dead even. Boeing has to compete with the like of Lockheed, Northrop, BAE, and the like for every defense dollar the U.S.
spends. However, the launch aid et al, payed for by the European taxpayers, on top of the European defense expenditures is a direct subside.
As U.S. Trade Representative Robert B. Zoellick stated in a press conference:
This is about fair competition and a level playing field. Since its creation thirty-five years ago, some Europeans have justified subsidies to
Airbus as necessary to support an ‘infant’ industry. If that rationalization were ever valid, its time has long passed. Airbus now sells more large
civil aircraft than Boeing,(1)
Despite repeated attempt by the United States to renegotiate the 1992 Agreement, European Commission has stubbornly refused to do so. The 1992
agreement envisioned a reduction of Subsides for the production of aircraft. However, Europe has failed to do so, Indeed the Airbus A380 was the most
heavily subsidized aircraft in history. As I pointed out in part I Airbus is already saying they will seek the same level of support for the launch of
the A350. These thinly veiled subsides in the form of launch aid and the like qualify under the WTO Agreement on Subsidies and Countervailing Measures
The subsidies are actionable because they are causing adverse effects to U.S. interests or “prohibited” because they are export-contingent or
both. In 1999, in a case by Brazil, the WTO found that Canadian financing with launch aid-type terms was a prohibited export subsidy. Another panel,
reviewing a case brought by Canada, found that Brazil’s interest rate subsidies to its aerospace industry were also an export subsidy. (2)
Airbus has used the 1992 agreement to further increase the amount of Subsides it receives. In light of its overtaking Boeing in the commercial
aircraft field one has to wonder why the governments of Europe continue to provide the now clearly not needed Subsides. However, it makes sense if
this is simply an elaborate jobs program.
Over its 35 year history, Airbus has benefitted from massive amounts of EU member state and EU subsidies that have enabled the company to
create a full product line of aircraft and gain a 50 percent share of large commercial aircraft ("LCA") sales and a 60 percent share of the global
order book. Every major Airbus aircraft model was financed, in whole or in part, with EU government subsidies taking the form of "launch aid" –
financing with no or low rates of interest, and repayment tied to sales of the aircraft. If the sales of a particular model are less than expected,
Airbus does not have to repay the remainder of the financing. EU governments have forgiven Airbus debt; provided equity infusions; provided dedicated
infrastructure support; and provided substantial amounts of research and development funds for civil aircraft projects. (1)
Indeed both parties were signatories to a 1994 WTO agreement, along with 100 countries, that declared that launch aid and other forms of
anti-competitive subsidy should not be tolerated (3). All fact point to Europe, not only interested in an elaborate taxpayer jobs program, never had
any intent to comply with the spirit of the 1992 LCAA. Nor it seems can it wean itself from the teat of “Subsides”. One has to wonder, how quickly it
could respond and develop new aircraft if it had to assume actual market risk in is ventures.
Airbus supporters are quick to point to Boeing’s contractual agreement with japan and cite them as an unfair subside. However, that is a simplistic
view and they often fail to point out quite a few realities of Boeing trade with japan.
The actions between the Japanese government an Japanese Industrial concerns is not directed by Boeing, rather they represent a national initiative.
Boeing is required to negotiate and pay fair market price for the good and services that they receive from their Japanese suppliers. Boeing does not
have a formal relationship between its Japanese suppliers beyond the contractual agreements that it has.
Indeed Airbus also has Japanese suppliers for its range of products. If the Japanese government is offering incentives like the state of Washington,
they are no doubt open to any and all producers of commercial aircraft.
(1) Press Release: October 6, 2004, U.S. Files WTO Case Against EU Over Unfair Airbus Subsidies, Office of the United States Trade
(2) Trade Facts, October 6, 2004 “No New Subsidies” , Office of the United States Trade Representative
(3) AIRBUS Subsidies, Boeing Corporation Background Information Press Release, No Date
Further in this series:
Airbus and Its Continued Subsidies By Europe (Part III) - The Case of Pratt &
[edit on 16-12-2004 by Banshee]