The WTO dispute: Is it a case of odd man out?

In an effort to promote a more favorable environment for international trade in large civil aircraft and reduce trade tensions, the U.S. and the European Union signed a joint agreement in 1992 on trade in large civil aircraft “recognizing that the disciplines on the GATT Agreement on Trade in Civil Aircraft should be strengthened with a view to progressively reducing the role of government support.”

The emphasis was on “reducing support” as the drafters recognized that “elimination of support” was an unrealistic. The agreement did reduce industry tensions. European limits on repayable launch investment were transparent. Limits on the U.S. industry, while hard to quantify, were agreed upon, but hardly observed.

In the period 1992 to 2004, Airbus produced new and competitive products, achieving a 50 percent market share. Boeing’s response could have concentrated on making better products. Instead, Boeing pushed the U.S. government to bring a case on its behalf in the WTO. At Boeing’s behest, the U.S. Trade Representative unilaterally tore up the 1992 Agreement and filed the U.S. case.

To add insult to injury, Boeing CEO James McNerney now heads President Obama’s Export Council, which hopes to require our trading partners to abide by their agreements with us. That goal apparently ignores the fact that it was Boeing that pushed the U.S. government to break its word to our largest and most important trading partner, the European Union.

Real or fictitious numbers have been bandied about in the media concerning which company receives more government assistance. Boeing’s reasoning is that its NASA and defense subsidies are less than those of Airbus’ repayable loans from European governments. The media is trying to sort out which side’s claims of “victory” are more credible, as both sides praise the WTO’s work and simply get on with the business of securing government support.

The truth is the cries of victory are all right (and simultaneously all on the wrong track): (a) everybody won; (b) everybody lost and (c) nothing will change until the two most important members of the Western security alliance can find a way to end this farcical spat, benefiting both sides’ competitors, lawyers and lobbyists. While the costs to the combatants are one thing, the results have still not been conclusive. 

Things could easily get worse with both sides threatening sanctions against the other.  However, the cases are so big and complex that this is probably not a realistic response either. The experience of Canadian and Brazilian aircraft companies achieving little or no results in two similar WTO cases should be a teachable moment in that regard. How do the two giants get out of the fix they’re in?

Under WTO subsidy rules, the companies and the governments are all sinners, but the WTO’s judges will not be able to redeem them as government bodies seldom resolve feuds neatly. The hope is that the industry will sort itself out.

The WTO cases have left one thing clear. It has said that the loans used in Europe are legal as an instrument and can continue but that Boeing’s grab for R&D and state tax support is illegal and must stop but has okayed Europe’s aviation R&D programs.

Add to that severe cuts in NASA and defense budgets and necessary austerity measures could wipe out Boeing’s traditional access to government largess. In such a scenario it isn’t much of a leap from the decades old relationship Boeing has enjoyed to a repayable launch investment approach.

Ironically, the Boeing-initiated feud may have left the United States as the odd man out.

Charles A. Hamilton is an international trade consultant in Washington, D.C. He serves as a consultant to Airbus on trade matters. Having observed the great feud for over 30 years from both sides of the Atlantic, these are his views that may not necessarily reflect those of Airbus.