A fair and balanced trade environment and an integrated and smoothly-functioning global supply chain is the foundation of the global aviation industry. Airbus’ position has always been: no one wins in a trade conflict and all benefit from open markets and a level playing field. Airbus therefore calls on Boeing, the U.S. Trade Representative, the EU Commission and the Member States to come to the table to agree on whether and how governments can provide support to aircraft manufacturers.
The U.S. case against the EU
In 1992, the U.S. and the EU signed a bilateral agreement on government support for large civil aircraft permitting Airbus to receive loans up to 33% of the development costs of a programme and Boeing to receive direct grant subsidies up to 3% of the U.S. civil aviation industry turnover.
On 6 October 2004, Boeing prompted the U.S. to unilaterally and unexpectedly withdraw from the 1992 agreement and to file a complaint at the WTO over all EU support ever granted to Airbus. The U.S. – and Boeing – claimed that Airbus receives billions of WTO-inconsistent subsidies even though much of the support had previously been agreed to by the U.S. in the 1992 Agreement.
After years of proceedings, in 2010 and 2011 a WTO panel and then the WTO Appellate Body respectively found that the loans provided by the EU countries were (1) not prohibited, and (2) only constitute a subsidy if the interest rate due is below market rates. It also found that all research and development programmes in the EU are fully compatible with WTO rules and rejected the U.S. challenge to support for the A380 production sites in France. The WTO found that other capital contributions to Airbus made in the 1980s, and infrastructure support, were actionable subsidies. And it found that Boeing had lost a number of sales, and had lost some market share, as a result of the EU support. The WTO directed the EU to either (1) withdraw the remaining subsidies, or (2) remove the effects of the subsidies.
In response, in December 2011, the EU presented a comprehensive set of actions taken to address the WTO findings and recommendations. The U.S. asserted that the EU had failed to comply. And WTO proceedings were launched to review the EU’s measures taken to comply.
The resulting compliance proceedings concluded in May 2018. The WTO Appellate Body found that the EU had complied with the WTO findings with respect to the loans for the launch of the A300, A310, A320, A330 and A340 programmes. And it rejected repeated U.S. claims that loans for the A380 and A350 XWB were prohibited. As such, the only programmes that were still subject to WTO recommendations was support for the A380 and A350.
The EU therefore took a number of additional measures to comply with the WTO Appellate Body findings. A WTO compliance panel was established to assess whether there still is a subsidy element in the loans, and whether that subsidy element has an impact on Boeing.
Refusing to wait for the outcome of those compliance proceedings, the U.S. requested authorisation from the WTO to apply countermeasures on the EU, commensurate with its estimate of the effects of the EU subsidies (USD 10 billion per year). In October 2019, the WTO – refusing to take into consideration the deliberations of the ongoing compliance panel – authorised the U.S. to impose tariffs on USD 7.5 billion worth of EU products, on an annual basis. As a result, on 18 October 2019 – despite the ongoing compliance proceedings, U.S. airlines overwhelmingly imploring the U.S. administration not to do so, and the EU offering to settle this case – the U.S. imposed 10% tariffs on aircraft from the EU, as well as 25% tariffs on a range of other products from the EU.
In the meantime, the WTO compliance panel issued its report on 2 December 2019. It found that, because the A380 no longer is being marketed, the loans provided for its development no longer cause Boeing to lose sales. Consequently, the USD 7.5 billion in tariffs the U.S. was authorised to impose in October should immediately be reduced by the value of lost sales no longer found to exist. The panel also found that the amendments made to the A350 loan agreements are not sufficient to fully align the loans with market conditions. Airbus does not agree with the legal and factual findings that are the basis for the panel’s conclusion and therefore supports the EU if it were to appeal this decision, as per WTO process.
The countersuit: Boeing subsidies
Following the decision of the U.S. to unilaterally withdraw from the 1992 Agreement, in October 2004 (on the very same day as the U.S. filed its WTO complaint), the EU filed a complaint against the support Boeing received.
In its WTO case against the U.S., the EU challenged various U.S. federal, state and local subsidies benefiting Boeing, totalling USD 23 billion. This includes:
- A USD 3.8 billion package of tax breaks provided by Washington State in 2003. The State of Washington made it very clear at the time that the incentive package was designed to help “Boeing to beat Airbus.” Independent commentators noted that the Boeing Incentive Package was an “unprecedented” deal that has “never been done for any company by any state.”
- A USD 900 million subsidy package by the State of Kansas.
- A USD 25 million subsidy package by the State of Illinois.
- USD 16 billion in subsidies provided by NASA and the U.S. Department of Defence.
- USD 2.2 billion in Foreign Sales Corporation export subsidies, Boeing was eligible for, despite previous WTO rulings that these are prohibited subsidies under WTO law.
In 2011 a WTO panel found that:
- Boeing would not have been able to launch the 787 without illegal subsidies: “What is clear to us is that, absent the aeronautics R&D subsidies, Boeing would not have been able to launch an aircraft incorporating all of the technologies that are incorporated on the 787...”. “[T]he R&D subsidies ... contributed in a genuine and substantial way to Boeing’s development of technologies for the 787.”
- Boeing has received “at least $5.3 billion” of U.S. taxpayer dollars which has been determined illegal: “[W]e have estimated that the amount of these subsidies to Boeing’s LCA division was at least $5.3 billion.”
- An additional over USD 2 billion in state and local subsidies that Boeing will receive in the future are illegal. “[T]he Panel finds that the Washington [tax credits] are specific subsidies to Boeing.” “[W]e recommend that ... the United States ‘take appropriate measures to ... withdraw the subsidy’.”
- The pervasive subsidies have thoroughly distorted competition within the aviation industry, directly resulting in significant harm to the European aerospace industry. “[W]e would characterize the NASA R&D subsidies as strategically-focused R&D programmes with a significant and pervasive commercial dimension.”
“[The subsidies] enabled Boeing to lower its prices beyond the level that would otherwise have been economically justifiable.... [T]his led it to securing sales that it would not otherwise have made, while in other cases, it led to Airbus being able to secure the sale only at a reduced price.
- The effect of these subsidies will continue in the future, putting Airbus at a significant disadvantage: “We note further that, to the extent that these subsidies have enabled Boeing to win sales from Airbus in the past, they have served to entrench Boeing as the incumbent supplier, thereby putting it at an important switching cost advantage over Airbus in future sales.”
After a futile US appeal, in March 2012, the WTO Appellate Body confirmed the WTO findings. It confirmed that the Washington State and the Foreign Sales Corporation subsidies, as well as the Kansas subsidies, caused harm to Airbus. And it confirmed that NASA had provided Boeing with more than USD 2.6 billion in subsidies, through direct payments and free access to facilities, equipment and employees. It also confirmed that the US Department of Defense has transferred to Boeing dual use technology worth up to USD 1.2 billion. The above research and development subsidies gave Boeing a competitive advantage, causing Airbus to lose sales campaigns.
US President Barack Obama agreed with the WTO Appellate Body, stating during a visit to Boeing’s production facility in February 2012: “Government research helped to create this plane. [A] lot of those ideas came out of government research. We’ve got to support this kind of cutting-edge research.”
Instead of complying with the WTO findings, and officially foregoing all these tax breaks and grants, Boeing threatened to leave Washington State unless it received additional tax breaks. Washington Governor Jay Inslee likened Boeing’s actions surrounding the tax break to a mugging at gunpoint. “These corporations put a gun to your ribs and said you’re going to lose 20,000 jobs unless you get a tax break.” Read the interview
As a result, in 2013, the State provided Boeing the 777X incentive package, valued at a whopping USD 8.7 billion – the largest ever state-level subsidy package in the history of the US. And more recent Boeing filings with the Department of Revenue indicate that the actual tax breaks granted to Boeing are significantly higher. Read the article
Industry specialists consider that these amounts could be sufficient to cover the entire cost of design and development of the 777X, essentially giving Boeing a “free ride” by offsetting completely its costs of developing and bringing the aircraft to market.
As a result of the U.S. failure to take any real measures to comply with the WTO findings – and even provide additional subsidies – a WTO compliance panel was established to assess the U.S. actions. That panel found that the U.S. had not removed the subsidies nor removed the pervasive effects of the subsidies. The U.S. unsurprisingly appealed that decision and, in March 2019, the WTO Appellate Body again rejected the U.S. arguments and found that the panel’s findings relating to Washington State, but also South Carolina, Foreign Sales Corporation tax breaks, and federal NASA and DOD subsidies all constituted subsidies that caused harm to Airbus. Contrary to Boeing’s claims that these subsidies are insignificant, the magnitude of the subsidies is massive:
Whashington State:
- Washington State Business and Occupation (“B&O”) tax rate reduction for the aerospace industry: estimated future value to Boeing 2019-2040: USD 4.934 billion
- Washington State B&O tax credits for preproduction/aerospace product development: estimated future value to Boeing 2019-2040: USD 4.094 billion
- Washington State B&O tax credit for property taxes: estimated future value to Boeing 2019-2040: USD 653.5 million
- Washington State sales and use tax exemptions for computer software, hardware, and peripherals: estimated future value to Boeing 2019-2040: USD 281.1 million
- City of Everett B&O tax rate reduction: estimated annual value 2019-2023: USD 148 million
Total Washington State: USD 10.1 Billion
South Carolina:
- South Carolina economic development bonds (“EDB”): estimated historical value USD 340 million, anticipated similar future value from new issuances if Boeing chooses to expand in South Carolina
- Payments by South Carolina under the Project Gemini Agreement to compensate Boeing for a portion of the construction costs of the Gemini facilities and infrastructure through air hub bond proceeds: historical value USD 50 million, anticipated similar future value from new issuances if Boeing chooses to expand in South Carolina.
- South Carolina property tax exemption for Boeing’s large cargo freighters: estimated value USD 6.65 million in 2019, depreciating at 5% per year (i.e., 6.32 million in 2020, 6 million in 2021, etc.)
- South Carolina sales and use tax exemptions for aircraft fuel, computer equipment, and construction materials: estimated future value USD 0.75 million per year
- South Carolina multi-county industrial park (“MCIP”) job tax credits: estimated historical value USD 19 million, anticipated similar future value from new job creation if Boeing chooses to expand in South Carolina
Total South Carolina: USD 415 million
Federal level subsidies:
- Tax exemptions and tax exclusions provided to Boeing under FSC/ETI legislation: actual amounts received in 1989-2006: USD 2.3 billion.
- Foreign-Derived Intangible Income tax exemption (“FDII”): estimated future value USD 550 million per year (for Boeing).
- National Aeronautics and Space Administration (“NASA”) aeronautics Research and Development (“R&D”) subsidies under procurement contracts, cooperative agreements, and Space Act Agreements: estimated future value USD 350 million per year
- Department of Defense (“DOD”) R&D subsidies under (i) assistance instruments and (ii) payments and access to DOD facilities, equipment, and employees pursuant to DOD RDT&E procurement contracts: estimated future value USD 70 million per year.
- U.S. Federal Aviation Administration’s (“FAA”) Continuous Lower Energy Emissions, and Noise (“CLEEN”) R&D subsidies: estimated future value USD 4 million per year (including monies awarded to Aurora Flight Sciences, a Boeing subsidiary)
Total Federal per year: USD 974 million per year (excluding FSC)
In light of the WTO findings and the lack of measures taken to comply by the U.S., the EU requested the WTO authorisation to impose countermeasures on U.S. imports, commensurate with its estimate of the effects of the U.S. subsidies on Airbus (USD 12 billion per year). That decision is expected in the spring of 2020 and would provide the EU authorisation to impose tariffs on imports of U.S. products, including Boeing aircraft.
Next steps
The December 2019 report of the WTO compliance panel that found the amendments made to the A350 loan agreements were not sufficient to fully align the loans with market conditions, could be appealed by the EU or the U.S. However, as USTR is blocking the appointment of WTO Appellate Body judges, the appeal may not be heard until USTR agrees to unblock the situation.
In parallel, the WTO authorisation to the EU to impose tariffs on imports of U.S. products, including Boeing aircraft, is expected in the spring of 2020.
The EU, Member States, and Airbus have always – since 2004 – publicly and vocally favoured resolution of this dispute through negotiation rather than litigation. The EU has made several concrete offers to USTR to this end. Unfortunately, USTR continues to (1) demand that European government support must be withdrawn entirely as a pre-condition to any discussion (ignoring the WTO findings), and (2) completely ignore the simple fact (confirmed by the WTO) that Boeing has received – and is receiving – billion in subsidies as well.
The EU and the U.S. will almost certainly be compelled to negotiate a new civil aircraft agreement of some description, eventually. The question is simply how long the U.S. will drag out the dispute, and how much harm will be done to the aviation industry and the EU/U.S. trading relationship in the meantime.
Why does free trade matter to Airbus?
There is not a single aircraft in the sky that has been manufactured in one country alone. No country has a monopoly on the skills or talent required to make the A350 or the Boeing 787. Policies that inhibit trade and the capacity of Airbus (and Boeing) of getting the expertise they need, wherever in the world, will only serve to make aircraft more expensive and less technologically advanced, creating additional costs for the customers and consumers and inhibiting growth and development in the aviation industry.
Airbus has long chosen to broaden its sourcing strategy to take advantage of the most competitive products in the market. When an airline chooses an Airbus aircraft powered with a U.S. engine it actually buys a product with around 40% U.S.-manufactured content. And during production, many components will have been exported and imported across national and jurisdictional lines multiple times.
Our A350 aircraft is not simply made in Europe; it is assembled from parts manufactured by companies all over the world. The wing of the A350 includes components manufactured in the U.S., Belgium, Italy and the UK. More than 1,200 American companies, doing their work at locations in 44 different states, have been involved in the manufacture of the A350. Tens of thousands of American workers are helping make the Airbus A350 and other Airbus aircraft.
Similarly, Airbus employs over 2,500 people in the U.S. It is also the biggest foreign customer of U.S.-manufactured industrial aerospace components. Airbus contributes more than USD 17 billion to the American economy annually with its network of U.S. suppliers, making Airbus the largest single customer of U.S. aerospace exports – more than any other company, or even country. These investments support more than 275,000 American jobs.
Therefore, any restriction in trade, has a significant impact on Airbus, its employees, its suppliers, and its customers.
Why did Boeing/USTR launch this dispute?
Since the origins of flight, the U.S. has sought to lead in civil aircraft production. In the 1960s and 1970s, thanks to U.S. government support, the U.S. effectively enjoyed a monopoly. When Airbus started to develop its products and gained some success in the market, the monopoly gradually vanished. This led to what both Airbus and Boeing agree is a healthy competitive environment, where both companies are constantly innovating for the benefit of airlines and passengers.
In 1992, in an effort to level the playing field in terms of government support, the U.S. and the EU signed a bilateral agreement on government support for large civil aircraft. This agreement formalised the practice in the U.S. and the EU. While the U.S. supported Boeing through R&D grants and tax breaks, the European countries provided Airbus repayable loans to fund part of the development of their aircraft programmes. The 1992 Agreement permitted Airbus to receive loans up to 33% of the development costs of a programme and Boeing to receive direct grant subsidies up to 3% of the U.S. civil aviation industry turnover.
This agreement remained in place until 2004. But in 2004, for various Boeing-internal reasons, Boeing’s market share fell below 50%. It therefore lobbied the U.S. administration to unilaterally abandon the 1992 Agreement and initiate a WTO dispute, accusing Airbus of receiving illegal subsidies. Boeing blamed all its market share losses on the government support Airbus received. Despite the fact that airline executives publically explained they had decided to buy Airbus aircraft because Boeing was resting on its laurels while Airbus was innovating. Boeing thereby avoided the thorny questions around their strategic choices and rallied support for additional government support from the U.S. State and Federal governments (For example, in 2013, Washington State provided Boeing the 777X incentive package, valued at a whopping USD 8.7 billion – the largest ever state-level subsidy package in the history of the U.S.).
What’s happened lately in this dispute?
In October 2019, the WTO authorised the U.S. to impose tariffs on USD 7.5 billion worth of EU imports, on an annual basis. Despite the ongoing compliance efforts by the EU, the U.S. airlines overwhelmingly imploring the U.S. administration not to do so, and the EU offering the U.S. to settle this case, on 18 October 2019 the U.S. imposed 10% tariffs on aircraft from the EU, and 25% on a range of other products from the EU. Boeing encouraged USTR to apply 100% tariffs on Airbus aircraft.
In the counter-case assessing the U.S. subsidies to Boeing, in August 2019, the EU requested the WTO authorisation to impose countermeasures on U.S. imports, commensurate with its estimate of the effects of the U.S. subsidies on Airbus (USD 12 billion per year). The decision by the WTO is expected in the spring of 2020 and would provide the EU authorisation to impose tariffs on imports of U.S. products, including Boeing aircraft.
Who wins in this dispute?
Let’s be clear: there are no winners in these trade disputes. These trade disputes will lead to tariffs on both sides of the Atlantic, increasing cost for airlines. More expensive aircraft leads to a reduction in the number of seats available, a reduction in airline routes and, ultimately, higher prices for the flying public.
For the airlines, having the competitive benefit of two healthy aerospace manufacturers offers better value (whether via competitive pricing or alternative capabilities). For the U.S. economy, having a U.S. supply base that supports both plane manufacturers is inherently healthier and more robust than a Boeing-only monopoly.
It is therefore in the interests of not just European aerospace, but suppliers and consumers globally, that everything possible is done to avoid tariffs.
Is there any way out of this?
As Airbus has been saying for the last 14 years, the only way out of this dispute is for the EU and the U.S. to sit around the table and agree on modalities on if and how they want to support their respective aviation industries. The imposing of tariffs on both sides of the Atlantic will not lead to a sustainable solution: it will only lead to increased costs.
A negotiated agreement, that also includes other market entrants, is in the interests of Airbus and Boeing, their suppliers, and of airlines and the flying public.
Key developments:
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2019
The WTO Appellate Body reviewing the measures taken to comply by the U.S., confirms that the U.S. failed to withdraw the subsidies or remove the effects of the subsidies granted to Boeing. The U.S. has not made any further efforts to demonstrate compliance with the WTO findings. A second compliance panel is established to review the EU’s further measures taken to comply with respect to the A350 and the A380. The findings of that panel are expected in December. Refusing to wait for the outcome of those compliance proceedings, the U.S. requested authorisation from the WTO to apply countermeasures on the EU, which the WTO granted. The EU requested that the WTO authorise countermeasures on U.S. products, commensurate with its estimate of the effects of the U.S. subsidies on Airbus (USD 12 billion per year). The decision by the WTO is expected in the spring of 2020 and would provide the EU authorisation to impose tariffs on imports of U.S. products, including Boeing aircraft.
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2018
The WTO Appellate Body reviewing the measures taken to comply by the EU, confirms that the subsidies and/or effects relating to the A300, A310, A320, A330 and A340 have been removed and are therefore no longer of relevance. As such, the only measures still under scrutiny involve the loans relating to the A350 and the A380. The rulings also affirms the legality of the loan approach taken by the EU governments.
- 2012
- 2010
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2004
Boeing prompted the U.S. to unilaterally withdraw from the 1992 Agreement and to file a complaint at the WTO over all EU support ever granted to Airbus, including the support that was previously agreed to by the U.S. in the 1992 Agreement. The EU followed suite, filing a complaint against direct support to Boeing in the form of government grants and regional tax breaks.
- 1992
Airbus is a global actor, with production worldwide. It invests in its communities to be close to its customers. It inaugurated its its Final Assembly Line at Tianjin, China, in 2008. And in 2015, Airbus opened its first commercial aircraft production site in Mobile, Alabama. This site is a USD 600 million, 53-acre site that produces up to 60 A320 family aircraft per year. Mobile also is where the final assembly line for A220 family aircraft destined for U.S. markets is located. Airbus’ presence in the U.S. and the overall U.S. aerospace industry is massive. And any restrictions on the sale of Airbus aircraft, have a direct impact on the communities where Airbus does business, such as Alabama and Tianjin.
Airbus creates a dream job in the American south
A highly trained and skilled workforce, our team of U.S. employees continues to grow. It’s a growth in numbers for Airbus, and a growth of learning and opportunity for our employees.
Airbus celebrates its American workers
From a small sales office to what is now thousands of workers in dozens of locations across the U.S., Airbus continues to grow its American presence and its team of American workers.
Airbus celebrates its American veterans
Airbus has been steadily growing its industrial footprint in the U.S. for decades, and we proudly have grown the number of American military veterans on our team. Hear what they have to say.
Airbus has communicated regularly on this issue. The links below lead to interviews, press releases and financial statements that cover trade topics:
EU and Airbus achieve major win against US with solid basis for billions in countermeasures
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Airbus statement regarding the recent WTO AB report and the Second Compliance Communication by the EU
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WTO confirmed: no prohibited subsidies at Airbus, minor elements of actionable subsidies to be addressed
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