U.S., EU Take Aircraft Subsidies To WTO

May 31, 2005

A transatlantic dispute over subsidies and the development of large commercial aircraft is again moving from Washington, D.C., and Brussels, Belgium, to Geneva, Switzerland, the headquarters of the World Trade Organization (WTO).

John McClenahen

Both the U.S. and the 25-nation European Union (EU) are asking the WTO to begin dispute settlement proceedings, which, based on the recent history of such efforts, could last two or more years.

At the heart of the matter are years of cross-Atlantic allegations that Chicago-based Boeing Co. and Toulouse, France-based Airbus SAS receive government development money that runs afoul of WTO rules on subsidies. The allegations are taking on new urgency as Boeing and Airbus battle for control for the commercial-aircraft skies, a multi-billion dollar market.

The U.S. asserts that the EU is "preparing to commit $1.7 billion in new risk-free launch subsidies" to Airbus to help bring the proposed A350 passenger jet to market. "We continue to prefer a negotiated solution, and we would rather not have to go back to the WTO. But the EU's insistence on moving forward with new launch aid is forcing our hand," said Rob Portman, the U.S. Trade Representative on May 30. The A350 would compete directly with Boeing's 787 aircraft.

Peter Mandelson, the EU's trade commissioner, on May 31 rejected that explanation. ". . . I have found that the U.S. wishes to talk only about the immediate ending of European launch investment for Airbus and has never wanted to engage in a serious, even-handed discussion of the much larger subsidy programs for Boeing," said Mandelson. "The EU will focus its WTO case against the subsidies granted to virtually all Boeing programs and in particular on the unprecedented gifts from Washington State intended to help production of Boeing's new [787] program . . . ."

The WTO could find that both companies are receiving subsidies that are illegal under international trading rules and order them to stop. But it's also possible that the U.S. and EU will be able to negotiate a settlement before the WTO rules, although it's likely to take longer than the 90-day period they unsuccessfully tried earlier this year.

The dispute goes back to 1985, when the U.S. and the Europeans first began talking about Airbus and subsidies for the development of larger commercial aircraft. In July 1992, the U.S. and the Europeans reached an agreement limiting future government support for the development of new aircraft programs to 33% of the project's total development costs. The U.S. contends the EU has not lived up to that bilateral agreement. During 2004, as EU members were discussing development subsidies for the A350, the U.S. again sought an agreement to negotiate an end to subsidies. That did not happen, so in October, 2004, the U.S. took the first step of dispute resolution through the WTO by requesting consultations with the EU. The EU countered with a formal request for consultations on alleged U.S. subsidies to Boeing. The U.S. also terminated the 1992 subsidy agreement. A decision on whether Airbus will receive launch aid for the A350 from four EU governments is expected in mid-June.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.