Trade Ruling Gives Conflicting Signals, Far From Over; More News

It was a preliminary ruling, with only two, 1,000-page paper copies delivered to US and EU representatives, but the World Trade Organization document has far reaching implications for Embraer and Bombardier as well as emerging aircraft programs from China, Japan and Russia.

So Aerospace Industries Association reaction was no surprise. “This is a positive action to help ensure the long-term health of the global aerospace enterprise,” said AIA in reaction to the ruling. “While preliminary, the ruling provides much-needed guidance to WTO members that are involved in or considering entering into civil aircraft production.”

Given the fact that this complaint was brought in 2004, it begs the question as to whether now, at a time of trillions of dollars in government subsidies awarded to auto makers and banks, the ruling is even relevant. It also begs the question as to whether or not aircraft programs are too big to be borne by private funding alone.

The ruling, issued Friday, on the question of subsidy at Airbus prompted U.S. representatives to declare a “great victory,” saying all launch aid for the A380 had been ruled illegal.

Not so fast, said European sources close to the ruling. They tempered the US victory celebration, saying reports that A380 subsidies were illegal are wrong and misleading. Others noted over 70% of the charges were thrown out, government launch aid was “permissible,” and not all of the A380 loans were illegal “in their totality.” All this, despite the confidentiality of the document from the largest case in WTO history.

Clearly, it ain’t over until the fat lady sings and that won’t be for an estimated five years as a final ruling is not expected until next year and appeals will take even longer. In the meantime, the WTO turns its attention to the European counterclaim that Boeing receives subsidies through tax breaks and its work on both military and NASA programs, which is expected to go to Airbus keeping the status quo between the two airline makers. That preliminary ruling is expected in six months.

The US shot claims two decades and $20 billion in aid from France, Germany, Spain and Britain gave Airbus a competitive advantage. The EU shot claims $24 billion in aid to Boeing through its work with the Department of Defense and NASA as well as state tax aid.

The upshot? The rulings will finally force both sides to hammer out a compromise which would transform the heretofore highly interpretative language that now prevails. This, indeed, may be the most lasting legacy given the emerging aviation programs around the world. Certainly, something would have to change if the US and Europe expect to launch successful challenges of the aid granted to the world’s emerging aircraft industries.

The question of relevancy is acute and have divided the U.S. Some, representing so-called Boeing states such as Washington, hope the ruling will force the Department of Defense to award Boeing the 179-unit refueling tanker that would replace the ageing KC 135. DOD said the ruling will not come into play nor should it since the signals, so far, are so mixed. The competition is set to kick off again this fall with an Airbus/Northrop Grumman entry, using the A330 platform, as an entry, sweetened by assembly in Alabama. However, legislators from are already out there saying DOD should not reward Airbus subsidies.

Also making the issue relevant are the billions of dollars at play in the aviation industry, not to mention the trade balance since aviation accounts for more trade dollars than any other industry. Then there is the question of export financing and whether or not it is a prohibited subsidy. These financing facilities are used all over the world, including the US. Oh, yes, and the $4.2 billion launch aid now being aimed at the A350, set for service entry in 2013, also makes the case relevant.

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