As American and European audiences enjoy historical airplane innovation in the new Howard Hughes biopic, “The Aviator,” a real life drama over the future of aircraft manufacturing is reaching a zenith: European Union Trade Commissioner Peter Mandelson is considering the U.S. offer to negotiate ending European launch aid subsidies to Airbus.
One way or another, these subsidies are going to end. Since December, both sides of the U.S.-E.U. Airbus subsidy dispute can now formally request a panel before the World Trade Organization. Before pursuing this WTO litigation, the United States has wisely extended an olive branch to Commissioner Mandelson by delaying this formal step until early this year. Commissioner Mandelson should use this extra time to contemplate the strong case against subsidies, and immediately send us a signal that Europe is also interested in avoiding lengthy arbitration. If this epiphany does not occur, the U.S. will use the WTO process to let Europe know that we will no longer tolerate inequitable illegal subsidies that threaten America’s civilian aircraft industry.
European launch aid is a risk-free loan that Airbus only has to pay back, at little or no interest, if their airplane is a commercial success. The $15 billion in total subsidies ensures that Airbus executives can capriciously wager airplane production lines like they are at a Monte Carlo casino because launch aid eliminates worries about financial failure or profit. During a recent U.S.-E.U. policy meeting in Brussels, we raised this issue with the Europeans, but they seemed reluctant to end a dubious practice that has paid them such large dividends. Others, such as Sen. Patty Murray and the entire bipartisan Washington congressional delegation, continue to promote efforts to convince the Europeans to end these subsidies.
Europe initially intended launch aid to help the continent’s aircraft industry mature as a global competitor. Yet the justification for subsidies no longer exists – if it ever did – because of Airbus’s continued market share increases. Airbus captured 54 percent of orders in 2003 with a higher portion estimated for 2004. A 1992 U.S.-E.U. agreement recognized the need to cap and eventually reduce these subsidies once Airbus established itself. However, the Europeans have so seriously violated those terms that the United States withdrew from the agreement in October.
Airbus’s subsidy-fueled airplanes undermine competition in the industry by allowing them to be more aggressive in producing and marketing aircraft. Airbus has requested subsidies from Europe for its new midsize A350 aircraft, which will challenge Boeing’s planned 7E7 jetliner. For Airbus’s Howard Hughes-like colossus, the A380, European governments have already committed $3.2 billion in launch aid, and have provided billions of dollars in additional loans and infrastructure assistance for improvements in port, manufacturing and transportation facilities.
European treasuries, instead of Airbus, assume the commercial liability for producing these new airplanes. Recently, Airbus announced around $2 billion in cost overruns on the A380, but it is expected that they will ask European governments to once again offset these costs. Furthermore, Airbus would have at least $35 billion in extra debt on its books if it had borrowed launch aid from private sources. As Europe plays benefactor to Airbus’s expensive gambling, the company can embark on new projects faster than competitors, and make lower bids to airlines.
Airbus launch aid’s effect on American workers is substantial: Many of the 61,000 jobs lost at Boeing’s commercial division have resulted from European subsidies. Over the last five years, Boeing has seen a 20 percent decline in its market share and experienced significant sales losses due to Airbus’s ability to undercut pricing. Former French Prime Minister Lionel Jospin was most direct about the European’s intent: “We will give Airbus the means to win the battle against Boeing.” It is sad that either side would promote a trade fight that results in their competitor’s demise or marginalization.
Commissioner Mandelson might consider the incredible strength of our argument when deciding to avoid WTO litigation. Europe defends its subsidies by citing benefits given by state governments to Boeing. Yet Airbus and its suppliers qualify for the same Washington state tax reductions if they manufacture part of their aircraft in the state. The E.U. would also have to show that Washington state benefits to Boeing have caused injury to Airbus – a difficult argument to make since Airbus has increased its market control, and the tax benefits are not restricted to one company. While these tax reductions are similar to what many countries make available to local aerospace industries, A380 launch aid does cause harm because it is given exclusively to Airbus.
Before we reach the point of hostile WTO arbitration, Mr. Mandelson should accept our outstretched hand to negotiate an agreement to reduce Airbus subsidies. As “The Aviator” shows us a history of pioneering innovative aircraft, it would be equally appropriate that we find a solution to restore fair competition to an industry that has many more future inventions in store.
U.S. Rep. Jay Inslee represents Washington’s First Congressional District, which includes Southwest Snohomish County. Inslee attended a transatlantic policy conference in Brussels, Belgium for several days in December, at which time U.S. members of Congress met with European Union commissioners and members of parliament.
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