WTO appeal faults Boeing subsidies: sources

Reuters News
Posted: Mar 09, 2012 7:08 PM
WTO appeal faults Boeing subsidies: sources

By Tim Hepher

PARIS (Reuters) - The World Trade Organization has broadly upheld a ruling that Boeing Co took billions of dollars of unfair subsidies, breathing new life into an epic trade spat that has already faulted European aid to Airbus, people familiar with the matter said.

The world's largest trade dispute, involving mutual claims of aid to the dominant planemakers, reaches a crucial point on Monday when WTO appeal judges are expected to complete a pair of investigations by publishing their verdict on aid to Boeing.

At stake is whether the world's largest planemakers can continue to benefit from alleged public aid for heavy investment in new aircraft, though analysts say it may be years before the complex legal processes are finally exhausted.

Monday's ruling, coupled with a parallel case on Airbus that went largely against Europe, could influence the balance of power and timing of any negotiations to end the seemingly endless spat, but there are no signs of any agreement to talk.

The United States is instead pressing for $7 billion to $10 billion in annual sanctions in its own case on Airbus. Most trade analysts say that in practice such measures would take years to unfold.

"I think they (Boeing) can do a lot to disregard the ruling just as Airbus has been able to do an awful lot to disregard any ruling against them," said aerospace analyst Richard Aboulafia of Virginia-based Teal Group.

"I think unfortunately, this process just isn't working in anyone's favor."

The two sides accuse each other of soaking up billions of dollars in sham contracts and loans, while potential competitors in China, Canada, Russia and Japan are closely watching the case as they prepare to try to break open the transatlantic duopoly.

A WTO panel ruled last year that Boeing had received at least $5.3 billion in subsidies through research contracts mainly from space agency NASA as well as a series of tax breaks.

The findings followed a six-year probe into European Union claims that Boeing had received over four times that amount.

The EU filed the complaint as a counter-suit to U.S. claims that Airbus had benefited from decades of European government loans, which the WTO trade body also deemed unfair.

People on both sides of the dispute, who asked not to be identified, told Reuters the Geneva trade court's appellate body had upheld the bulk of the findings on the Boeing aid.

An advance copy of the ruling has been delivered to both sides but the findings are being held under wraps until Monday.

"It won't change much, but there may be some changes around the edges of the decision," a U.S. source told Reuters. A European source called the ruling a victory for the EU.

The Geneva-based WTO declined to comment.

The report is likely to be adopted by the WTO on March 22.

Even if it loses the appeal, the United States is expected to claim victory over the pair of cases by highlighting what it describes as $18 billion of European aid provided to Airbus, a figure disputed from the European side.

Airbus, however, will try to keep the focus on the EU's tit-for-tat case against the United States, and it expressed confidence about this part of the dispute on Friday.

"We don't expect any change on fundamentals. It should not surprise us or Boeing. There is no way they can win this case," a spokeswoman said.

A Boeing spokesman said it would not comment on the verdict ahead of the report's publication.

The ruling is expected to run to hundreds of pages and, as with previous reports, give plenty of scope for both sides to choose specific details they can use to claim victory in public.

The next battleground will be over whether Airbus can tap more European government loans for its next A350 aircraft. That issue has also become mired in domestic politics as the jetmaker battles with Germany over allegations of political interference.

In a new twist, a German newspaper reported this week that Airbus itself may decide to reject the German part of the A350 loan in order to escape pressure over the location of jobs.

That suggestion appeared to be part of a local political spat, rather than intended for WTO consumption, but some in the industry believe cash-rich Airbus parent EADS may indeed question loans as a consequence of any future settlement.

It is unlikely to address this before the WTO dispute is resolved, however. EADS Chief Executive Louis Gallois declined to be drawn on the matter at a news conference on Thursday.

For now, there are no signs of any let-up in the dispute, which trade sources estimate has cost at least $100 million in legal bills and travel to WTO headquarters on Lake Geneva.

"It'll be the usual. Both sides will claim victory. Both sides will vow to fight on. And exactly nothing can be accomplished at this point," Aboulafia said.

(Additional reporting by Kyle Peterson and Doug Palmer; Editing by Matthew Lewis)