World Trade Organization
WTO delivers knockout blow to boeing’s record-breaking subsidies with historic ruling $ 12 Bn in Annual Sanctions
28 November 2016 - Press release
Extends the WTO’s earlier condemnation of massive illegal subsidies to Boeing to 26 billion USD in the form of wholly non-refundable corporate welfare. This is the single largest state-level instance of corporate welfare in US history
12 March 2012 - Press release
- Appeal Report confirms and extends the WTO’s condemnation of massive illegal subsidies to Boeing
- Appellate Body rejects nearly 90% of US appeals of the WTO’s earlier findings while validating 100% of EU appeals
- Loss of roughly $45 billion in Airbus sales due to illegal Boeing subsidies
- B787 is the most heavily subsidized aircraft in aviation history
1 December 2011 - Press release
- Full implementation of the few remaining recommendations and rulings following EU success on WTO appeal in May 2011
18 May 2011 - Press release
18 May 2011 - Statement regarding WTO Appeal Report on Large Civil Aircraft subsidy case against Airbus (DS316)
Airbus’ President and CEO Tom Enders provides the following first reaction to the report:
“This is a big win for Europe. We are pleased with the results. Congratulations to the EU for managing the case so successfully and winning on all key elements. It is good to see that the WTO has fully green lighted the public-private partnership instruments with France, Germany, Spain and the UK. We now can and will continue this kind of partnership on future development programs”.
In order to provide a better understanding of the dispute, Airbus has made available documentation that provides further information and the company’s perspective on the two cases.
History of Boeing Subsidies
Since the early days of Boeing commercial aircraft, the United States (“US”) Government has partnered with and supported Boeing both financially and technologically. Indeed, Boeing Commercial Airplanes has relied on the US Government for its very existence.
It was US Government support that enabled Boeing to develop the first modern large civil aircraft (“LCA”). After selling thousands of aircraft to the US military during World War II, Boeing, in the 1940s, developed the B-47 bomber (and its prototypes) for the US Air Force. According to Boeing, “[e]very large jet aircraft today is a descendant of the B-47.” Boeing’s experience with developing and producing aircraft for the US military, as well as the expectation that the US Government would order a tanker version of the 707, enabled Boeing to develop the first modern LCA. According to Boeing, after placing an order in 1954 for KC-135 military tanker versions of Boeing’s Model 367-80 prototype, it was the US Air Force that needed to “agree to let Boeing build commercial jets based on the prototype” before Boeing could proceed to use the same basic design for the 707 LCA.
The types of illegal subsidies at issue before the World Trade Organization (“WTO”) today, including research and development subsidies—and the tremendous impact they have on Boeing’s business and products—are deeply rooted in the very foundation of Boeing. They are not, by any means, recent developments.
Background: How Did the Dispute Between Airbus and Boeing Start?
In 1992, the US and the European Communities (now the European Union, “EU”) concluded a bilateral agreement (“1992 Agreement”) in which the parties recognised a formula for balancing US financial grants to its aircraft industry with repayable loans to European industry. While the EU, in good faith, met its commitments under this agreement, the US repeatedly disregarded established limitations, both in terms of amounts and types of subsidies.
In October 2004, Boeing prompted the US Government to unilaterally and unexpectedly withdraw from the 1992 Agreement, and to immediately file a complaint at the WTO against all EU support ever provided to Airbus. In so doing, the US launched a challenge to the very measures it had agreed to accept in the 1992 Agreement. The EU was left with little option but to respond with its own WTO challenge to illegal US government support for its domestic aerospace industry (i.e., Boeing) by federal, state and local authorities.
These two parallel WTO challenges, the US challenge to EU support for Airbus (DS316) and the EU challenge to US support for Boeing (DS353), have followed different timetables due to a number of delays at the WTO.
In December 2014, the EU launched another challenge to support provided by Washington State to Boeing in exchange for locating the 777X wing production, fuselage production, and final assembly in Washington (DS487).
WTO Rulings Against US Subsidies
In the EU case against the US (DS353), the Appellate Body condemned massive illegal subsidies to Boeing.
On 12 March 2012, the Appellate Body confirmed that the US provided $5-$6 billion in illegal subsidies disbursed to Boeing between 1989 and 2006. The EU has estimated that support granted to Boeing after 2006 amounted to billions of dollars in additional subsidies.
The WTO Appellate Body report highlights the scale of illegal support to Boeing funded by US taxpayers. The AB confirmed the Panel’s findings that:
- Boeing has already received “at least $5.3 billion” of US taxpayer dollars, determined to be illegal.
- Boeing was set to receive at least an additional $2 billion in illegal state and local subsidies in the future under existing illegal schemes.
- The effect of the subsidies is significantly larger than their face value in light of their “particularly pervasive” nature.
- These pervasive subsidies have thoroughly distorted competition within the aircraft industry, directly resulting in significant harm to the European aerospace industry.
- Boeing would not have been able to launch the 787, the most highly subsidized aircraft in the history of aviation, as and when it did, without illegal subsidies.
Among those US subsidy programs identified by the WTO are Washington State tax breaks amounting to $3.1 billion for the 2006-2024 period, illegal tax abatements from the City of Wichita in Kansas valued at nearly $500 million, and research and development subsidies from NASA and DOD valued at $2.6 billion and $1.2 billion, respectively.
The US, after having been given six months to withdraw its illegal subsidies, provided no evidence whatsoever of any real compliance with WTO findings and recommendations. This prompted the EU, on 11 October 2012, to request the establishment of a WTO compliance panel. The compliance proceedings are currently underway, and a decision is expected to be released in mid-2017.
The Panel in the EU’s second case against the US (DS487) found additional Washington State subsidies to be “prohibited”, and ordered their immediate withdrawal.
On 28 November 2016, the WTO Panel confirmed once again that the US has provided billions of dollars in illegal subsidies to Boeing, this time targeted at the 777X.
The Panel found a significant portion of Washington State’s multi-billion dollar subsidy regime to Boeing—the single largest state-level instance of corporate welfare in US history—to constitute “prohibited subsidies.” In the Panel’s words, these belong to “a special category of subsidies, which Members have deemed to create such trade distortions that they are proscribed,” because they are “specifically designed to affect trade.”
Industry specialists suggest that the nearly $9 billion in subsidies provided by Washington State through the challenged legislation is sufficient to cover the entire cost of design and production of the 777X, essentially giving Boeing a “free ride” by offsetting entirely the costs of developing and bringing the aircraft to market.
The Washington State tax incentive regime, found in 2016 to include “prohibited” subsidies, was among those measures found to be WTO-inconsistent in 2012 due to the significant competitive harm it caused Airbus. This shows the degree to which the US has flouted international law, by ramping up subsidy programs already deemed illegal instead of complying with the WTO’s directive to withdraw them or remove their adverse effects.
The egregious subsidies identified in this case are “prohibited” and must be withdrawn “without delay and within 90 days,” according to the Panel.
Impact of Boeing’s Illegal Subsidies on Airbus
Considering the WTO’s rulings in these two cases combined, the WTO has found US subsidies to Boeing valued at over USD 26 billion. These subsidies cause over $95 billion in commercial harm to Airbus, and severely distort the competitive opportunities of aircraft component producers to sell their goods in the United States.