World Trade Organization ruling favors Boeing

Published 5:17 pm Friday, September 11, 2009

EVERETT — Washington lawmakers called an international trade ruling handed down Friday a major victory for the Boeing Co. against its European rival, Airbus.

“This is a crushing rebuke of Airbus’ illegal (commercial jet) launch subsidies,” said Rep. Jay Inslee, D-Wash.

The World Trade Organization issued a 1,000-page ruling Friday on Boeing’s complaint that Airbus benefited from billions of dollars of illegal subsidies paid by European governments.

U.S. politicians were briefed Friday on the lengthy preliminary opinion, which was not made public.

European officials who were briefed, however, had a somewhat different take on the ruling from American lawmakers and officials, suggesting that many of the complaints lodged by the U.S. had been dismissed. They also said the kind of easy-term loans provided by European governments to Airbus were in some instances seen as a permissible form of financing.

The ruling by the Geneva-based WTO likely will be challenged by the European Union, which has a countercomplaint against the United States and Boeing pending with the WTO.

“Airbus is trying to spin this,” Inslee said.

The lawmaker said that Airbus’ complaint mainly has to do with tax incentives given by states like Washington, not outright financial gifts, like those offered by European nations. Washington state came up with a $3.2 billion tax incentive package to land Boeing’s 787 final assembly line in Everett. But Inslee said that Airbus could take advantage of those benefits, too, should it decide to set up shop in Washington.

Friday’s decision confirms a complaint by the United States, filed in 2004, that “all Airbus aircraft have received illegal subsidies and that these have caused material harm to Boeing,” said Rep. Norm Dicks, D-Wash., among those briefed by U.S. trade officials on the yet-to-be released decision.

Boeing is headquartered in Chicago, but has extensive plane-building operations in the Everett and Seattle areas. Lawmakers from other states with links to Boeing also confirmed the decision.

The WTO finding was the first step in a process that could take years to produce a final result. The organization doesn’t have the power to impose sanctions itself, but it can allow a nation that has been harmed — in this case the U.S. — to raise tariffs or impose other barriers to imports from an offending country or countries.

Inslee suggested the U.S. impose tariffs on any Airbus aircraft imported by U.S. carriers, which would give Boeing significant sway with domestic carriers.

More immediate will be how the ruling plays out in the U.S. Air Force’s search to replace its aerial refueling tankers. Boeing is competing against Airbus’ parent company, EADS, and its partner Northrop Grumman. The duo are offering a tanker based off an Airbus A330 aircraft.

If the Department of Defense “wants a truly fair competition, it needs to start with competitors that play by the rules. DoD needs to answer to how this violation of WTO rules will be considered in the competition for the vital aerial refueling tanker,” said Sen. Patty Murray, D-Wash., in a statement.

But Republican Sen. Richard Shelby, who represents Alabama where EADS and Northrop would build their tanker, believes the WTO decision shouldn’t be a factor in the tanker competition.

“It is important to remember that this preliminary report pertains to a ongoing dispute involving civil — not military — aircraft,” Shelby said in a statement. “Whatever its findings, they should not affect the upcoming tanker acquisition.”

Analyst Scott Hamilton with Issaquah-based Leeham Co. said the WTO’s findings have no immediate, practical findings. He predicted the U.S. and Boeing would use the ruling for public relations gain.

But “Boeing and its supporters need to be careful about how much they bear down on the tanker issue,” Hamilton wrote in an update on his Web site. “When the WTO renders its staff report on the EU complaint over Boeing subsidies, and if as expected Boeing is found in violation of WTO rules, too, Northrop and its supporters can be expected to counter that Boeing behaved illegally as well.”

Wall Street seemed unsurprised by the WTO ruling. Wayne Plucker, manager of Frost &Sullivan’s North American aerospace research, said well-developed areas like the U.S. and the EU “don’t really need subsidies.”

Both Boeing and Los Angeles-based Northrop have been competing for years over the tanker contract that could surpass $100 billion over two decades.