Amidst the threat of a Euro-Atlantic trade war, the World Trade Organization ruled on Tuesday that the European Union maintained illegal subsidies on Airbus aircraft development.
The decision affirms a 2016 ruling and it is binding; the WTO ruling triggered a drop in Airbus stock value by just under 1% on Tuesday.
Specifically, the WTO ruled that Airbus benefitted from preferential access to €20bn in subsidized loans, mostly from governments, for the development of the world’s biggest airliner, the A380. There are similar concerns for Airbus’ marquee A350 jetliner.
As a result, Boeing argues they have lost orders and market share, casting doubt over the level playing field in the development of Airbus A320 and A330. Consequently, Boeing lost orders for its 747 jumbo and 787 Dreamliner in Australia, China, South Korea, Singapore, and the United Arab Emirates.
Airbus disputes the size of the loans in question are overstated and has, in turn, filed subsidy claims against Boeing. The ruling against Boeing is expected later this year and concerns billions of indirect subsidies in the form of tax incentives.
Washington trade representative Robert Lighthizer is responding to the WTO ruling with threats of sanctions.
The threat of sanctions has become a common theme in Euro-Atlantic trade relations, as a result of the US withdrawal from the Iran deal, as well as tariffs on steel and aluminium. Ironically, Washington’s withdrawal from the Iran deal could cost Boeing a $40 billion in aircraft orders from Tehran.
Meanwhile, US sanctions could target any European sector, since “goods” fall into one category. Sanctions will probably take the form of tariffs, the size of which will be determined by a WTO arbitration process, but they could cost the EU anything from €5-9bn a year.
The European Commission responded to the WTO ruling by noting that the dispute in question concerns mainly a 14-year-old case that expired in 2011; however, Brussels will move swiftly to ensure compliance with the ruling on all pending disputes.
Commenting on the substance of the case, European Commission officials seized upon Boeing’s recent criticism about poor sales of the A380 model, to make the case that there was no real harm for Boeing, since bigger models are not selling. Boeing argues that Airbus could develop the A380 without assuming the risk of market failure and, in effect, the US champion was competing against governments.