European complaints about subsidies to the Boeing Co. remind us of a scene from the movie “Casa Blanca.”
You remember the one. French Capt. Louis Renault, played by Claude Rains, feigns shock that illegal gambling is taking place at Humphrey Bogart’s saloon, then gratefully pockets his own winnings. Renault, of course, was looking for a pretense to shut down Bogie’s bar, just as the European Union now is pointing its finger at Boeing to divert attention from its own unfair trade practices.
The most egregious of those is the use of “launch aid.” European governments provide loans to Europe-based Airbus to start new a new line of commercial jetliners, loans that don’t have to be repaid if the new model is unsuccessful. Launch aid was instituted during Airbus’ early years, the idea being that the startup company needed such financial backing to get off the ground. Airbus is flying high now, having passed Boeing as the world’s leading commercial aircraft manufacturer.
Earlier this year, the United States pulled out of a 1992 agreement with the EU that allowed launch aid, but intended to reduce it over time. U.S. trade representatives also filed a case with the World Trade Organization, seeking to have such subsidies outlawed. In response, the EU filed its own complaint, arguing that the $3.2 billion package of tax and other incentives Boeing received from the state of Washington last year amounted to an illegal subsidy.
Even ignoring the fact that Airbus receives similar local subsidies of its own – how much is unknown because records aren’t made public – Washington’s incentive package doesn’t compare with the size of Airbus’ launch subsidies, or their effect. Boeing received tax breaks for agreeing to build the 7E7 here, but the billions it is investing in the program are its to lose. As Airbus seeks approval from its parent company to launch a competitor to the 7E7, the A350, its CEO says it also will seek more of those fat loans with the risk-free terms.
U.S. officials calculate that Europe has provided some $15 billion in launch aid to Airbus over the years, which would amount to a $35 billion debt on the company’s books today if it had borrowed that money commercially, as Boeing does. Such aid shields Airbus from risk, allowing it to price its airplanes more aggressively and putting Boeing at a big competitive disadvantage.
The WTO has an easy call to make in this case: the launch aid Europe provides Airbus is anti-competitive and should be banned. The EU could take a big step toward easing tensions by working toward a settlement, but that’s probably wishful thinking.
In the absence of such good faith, the Bush administration should press this case as hard as it can. Until launch aid is eliminated, Boeing and Airbus won’t be competing on a level runway.
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