We are about to find out if the slowing grinding wheels of justice also grind exceedingly fine. The World Trade Organization (WTO) is expected to issue a final ruling on a claim filed in 2004 by Boeing Co. (NYSE: BA) that the European Union paid billions of dollars in illegal subsidies to Airbus. Boeing won the last ruling — in 2016 — and Airbus routinely appealed.
The WTO is expected to rule in Boeing’s favor because it rarely overturns its earlier rulings. What is at stake is how much Airbus will be ordered to pay in order to cure the illegal subsidy payments.
In a nutshell, here’s the story so far: In 1992 the United States and the EU had agreed to a set of rules governing subsidies to aircraft makers. In 2004, the United States pulled out of the agreement and both sides filed complaints with the WTO. The United States complained about subsidies to the A380 program and the EU soon after 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. Each side appealed any ruling that went against it, and here we are on the cusp of final decision just 14 years later.
Following the 2016 ruling, Boeing claimed it was owed some $25 billion, including $17 billion in past subsidies and $5 billion to subsidize the launch of the A380 superjumbo passenger jet.
Complicating the issue is the current frostiness between the United States and the EU over trade and tariffs and the Iran nuclear deal. If the WTO decides that Airbus must pay something close to Boeing’s demand that will be viewed as a victory by the Trump administration: “See, we’ve been telling you all along that Europe had a ‘very, very unfair’ advantage in trade.” The president gains real leverage for his trade policies in this case. A much lower repayment total has the opposite effect.
Complicating matters further is a pending decision in the trade case brought by Airbus against Boeing for subsidies it received related to the development of the 787. A decision on that complaint is due later this year. Airbus also has filed a complaint against subsidies Boeing received to develop and build the 777X, but that one is barely getting started based on the timeline for the current case.
Aerospace industry watcher Scott Hamilton at Leeham News has a good wrap-up of what’s happened, what’s about to happen and what it all means both politically and in a business sense.
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