A 17 Year Old Dispute Comes to an End against a Common Rival

The feud over Airbus and Boeing is one of the longest-running battles in WTO(World Trade Organisation) history.

It took a common threat for the US and Europe to finally put an end to their dispute this past week, as the two sides signed a five-year truce suspending tit-for-tat tariffs.

While the United States and Europe waged a 17-year trade battle over subsidies to Boeing and Airbus, China poured money into its own commercial aircraft to take on the Western aviation duopoly.

What exactly is the Airbus-Boeing dispute all about?

The European Union and the United States claim that each other’s airplane manufacturer is unfairly subsidized.

It was the US that first filed a case with the World Trade Organization (WTO) in 2004 claiming that Airbus, which is jointly owned by Germany, France, Spain and Britain’s BAE Systems, had received $22 billion (€19.4 billion) in illegal subsidies. US officials estimated that the subsidies had resulted in an economic benefit of more than $200 billion.

The EU retaliated with a counter case, alleging that Boeing had received $23 billion in “trade-distorting” subsidies in the US mainly for its research and development projects. 

What has the WTO found?

Photo: airbus.com

Over the years, the WTO has ruled that both sides unfairly subsidized their aircraft makers.

In 2018, the WTO ruling held that the EU had supported Airbus with subsidized loans for the development of new aircraft — the A380 superjumbo and the A350 twin-aisle jet. The world body also found that the loans, which were repayable on delivery, amounted to illegal assistance.

Last year, the WTO handed the EU a victory in it’s counter case saying America’s favorable contract terms and tax breaks to Boeing had hurt Airbus sales. Interestingly, both the US and the EU claimed victory on hearing the decisions.

Ruling on the US sanctions request, the WTO in October 2019 allowed the US to impose tariffs on up to $7.5 billion worth of EU goods, the largest award in the trade body’s history but well below the US request. The US trade office had estimated the harm from the EU subsidies to Airbus at $11 billion in trade each year. 

Now a year later, the WTO has allowed the EU to impose tariffs worth $4 billion on US goods. That figure falls short of EU estimate of $12 billion in damages caused to Airbus by US support of Boeing. 

The Aerospace Giants finally sign a truce

The EU and US finally agreed to end a 17-year dispute over aircraft subsidies, lifting the threat of billions of dollars in punitive tariffs on their economies in a boost to transatlantic relations. 

Two days of intensive negotiations in Brussels led to a draft deal on how to handle subsidies for Airbus and Boeing, with the breakthrough finalised on June 15 2021 at US president Joe Biden’s first EU-US summit meeting in Brussels.

US President Joe Biden made it clear during his visit to Brussels on Tuesday: Washington and Brussels must “work together to challenge and counter China’s non-market practices in this sector that give China’s companies an unfair advantage”

With this agreement, we are grounding the Airbus-Boeing dispute

-EU trade commissioner Valdis Dombrovskis
Photo: bloombergquint.com

For the past four years, state-run manufacturer Commercial Aircraft Corporation of China (COMAC) has run test flights for its 168-seat, narrow-bodied C919 airplane, a potential rival to Airbus’s A320 and Boeing’s B737.

COMAC expects to obtain airworthiness certification from Chinese air traffic regulators this year, coinciding with the 100th anniversary of the Chinese Communist Party.

The very real problem is that China is manipulating the market in playing Airbus and Boeing against each other and demanding technology transfers as a condition for orders

– Said Richard Aboulafia, aviation expert at Teal Group, a market analysis firm based in Virginia.

From Duopoly to Triopoly

Photo: news.cgtn.com

The  COMAC is slowly racking up customers.

The company says it has 815 orders from 28 clients, most from Chinese airlines – though few are confirmed orders.

China Eastern Airlines was the first company to make a firm order in March for five aircraft.

Regardless of whether the COMAC is successful or not, it will definitely be cheaper than its rivals and create an “ABC pattern” in China, with Airbus, Boeing and COMAC operating in the country.

 We will grow probably from a duopoly to a ‘triopoly’ by the end of the decade for single-aisle aircraft

– Said Airbus chief executive Guillaume Faury

REFERENCE(s)

  • COVER: wita.org
  • channelnewsasia.com
  • ft.com