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Boeing wins first round in trade battle with Airbus

Tortuous inquiry into state aid to aircraft makers clears first of many hurdles

Sarah Arnott
Saturday 05 September 2009 00:00 BST

The World Trade Organisation found against Airbus in the five-year scrap with Boeing over state aid yesterday, although a final ruling on the multi-billion dollar wrangle might take another five years.

The 1,000-page interim report, sent to the US government and the European Commission, is the first formal conclusion of an inquiry launched in 2004. The US government, on behalf of Boeing, claims that $4bn (£2.4bn) worth of "launch aid" provided for Airbus's A380 by the British, French, German, and Spanish governments constituted illegal export subsidies.

Boeing claims that $15bn of launch aid loans on preferential terms provided to Airbus between 1970 and 2004 equates to $200bn of benefits, allowing the European group to design more aircraft, sell them faster, and nearly quadruple its market share between 1990 and 2008.

The WTO findings will not be made public for several months, but sources yesterday confirmed lawyers' expectations of a verdict in favour of the US claim. But yesterday's report is just the first stage of a lengthy process. The final conclusions will not be reached for several months, and only then does the convoluted appeal process begin.

But the case against Airbus is only half the fight. Europe retaliated with a counter-claim accusing the US of subsidising Boeing to the tune of $24bn through a series of tax breaks and contracts with both the Department of Defense and NASA. The WTO's first report is expected in another six months, and again legal experts expect the decision to favour the claimant.

Airbus said yesterday that the claim against it could take between three and five years to resolve. The group has been pushing for a negotiated settlement, but any discussions are expected to wait until the preliminary findings on both cases have been circulated. Talks are partly a matter of expediency. The WTO can impose multi-million pound trade sanctions, but the market is so complex that conclusive proof that the complainant's business was damaged may be hard to establish.

The WTO's decisions in both cases will be closely watched around the world. At the moment the global market is entirely dominated by Airbus and Boeing, but smaller rivals are on the rise – in China and Russia in particular – and all will be scrutinising the outcome to establish the limits of acceptable state support.

Nor does the dispute end with the $15bn in launch aid Airbus received between 1970 and 2004, as stipulated by the claim. European governments are planning to put up as much as €2.9bn (£2.5bn) for Airbus's €11bn, next-generation, extra wide-bodied A350 airliner, which will compete with Boeing's much-delayed 787 Dreamliner. Ron Kirk, the US trade representative has criticised the plans, and the US is expected to launch yet another complaint to the WTO on the subject.

The French and German governments have already committed €1.4bn and $1.1bn respectively, and last month Britain joined in with a £340m loan. Boeing described the moving as "disappointing" in the run-up to the WTO ruling on A380 subsidies, and claimed it constituted a "market-distorting subsidy that is unique to Airbus".

But Lord Mandelson, the Business Secretary, said the loan is an investment in UK manufacturing. "It's not a bailout, and it's certainly not a subsidy. It's an investment," he said. "It is also going to show a tremendous return to the British taxpayer." The money is expected to sustain as many as 5,000 jobs, including 1,200 at the company's factories at Filton in Bristol and Broughton in North Wales and another 3,800 across its long supply chain.

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