Boeing Hit With EU Complaint Over Subsidies
On Monday morning, Boeing Co. (NYSE: BA) said it had received a commitment from Air China for 60 of the company’s 737 family of single-aisle planes. The order includes an unspecified number of the current version of the 737, plus some number of the 737 MAX upgrades. In a statement, Boeing said that the order was worth more than $6 billion at list prices.
That is all well and good, but last Friday the company was hit with a potentially much bigger problem. The European Union (EU) filed a complaint with the World Trade Organization (WTO) related to the $8.7 billion in incentives granted to the company by the state of Washington to convince Boeing to do final assembly on the new 777X and to build the composite wing for the plane in the state.
According to the complaint, the extension of the subsidies from the original date termination date of 2024 to 2040 is “inconsistent” with WTO rules because the subsidies “require the beneficiary to use domestic goods rather than imported ones.”
In the seemingly never-ending disputes between Boeing and Airbus over government subsidies to both companies Friday’s filing was virtually inevitable. Equally inevitable is a counter-filing from the U.S. Trade Representative against subsidies from EU governments to support the launch of the Airbus A350.
In a statement issued Friday Boeing said, “The tax measures the EU challenges today are not market-distorting subsidies. They are available to all aerospace companies, including Airbus and its suppliers.”
Briefly, this is the history: In 1992 the United States and the EU had agreed to a set of rules governing subsidies to aircraft makers. In 2004, the U.S. pulled out of the agreement and both sides filed complaints with the WTO. The U.S. complained about subsidies to the A380 program and the EU complained about subsidies for the 787. The WTO found that the two sides had acted legally some of the time and illegally some of the time. Both sides appealed, and the appeals are pending.
When the state of Washington made Boeing the $8.7 billion offer it couldn’t refuse last year, the company jumped at it and Boeing’s machinists approved a contract with Boeing that it had already rejected in order to keep their jobs. That offer is at the center of the EU complaint filed Friday.
Any impact from Friday’s filing or from a counter-complaint from the United States is probably years away. The WTO grinds exceedingly slowly, if not exceedingly fine.