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May 15, 2018

EU still providing subsidies to Airbus: WTO

Airbus

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The U.S. won a long-running trade case challenging subsidies that European Union nations had provided Airbus SE to develop jetliners, costing Boeing Co. (BA.N) sales.

The World Trade Organization final ruling Tuesday paves the way for U.S. President Donald Trump to impose retaliatory sanctions. An appellate panel for the international trade body affirmed a 2016 ruling that the EU had failed to eliminate unfair funding for two Airbus models.

“Today’s final ruling sends a clear message: disregard for the rules and illegal subsidies are not tolerated. The commercial success of products and services should be driven by their merits and not by market-distorting actions,” said Boeing Chief Executive Officer Dennis Muilenburg.

Later this year, the WTO is expected to issue a final ruling in a separate case in which the EU challenged billions of dollars in U.S. aid to Boeing.

The litigation adds to the tension between the U.S. and Europe, two once-cooperative trade partners that are already sparring over Trump’s steel and aluminum tariffs and his decision to back out of a nuclear treaty with Iran.

The next stage of the 14-year battle will be over the size of the tariffs the U.S. will be allowed to impose to compensate for lost exports. The Geneva-based WTO can’t force nations or companies to drop payments that violate trade rules, but it can authorize retaliatory measures to pressure governments into complying with its rulings.

Previous Ruling

The decision Tuesday affirmed a ruling that EU member states have failed to adequately remedy market-distorting aid for the launch of Airbus’s A380 superjumbo, infrastructure support and equity investments that unfairly benefited the planemaker. The bloc compounded the issue with below-market loans for the planemaker’s marquee A350 jetliner.

The size of U.S. tariffs to be allowed will be determined through a WTO arbitration process, and will be based on the annual harm to U.S. and Boeing -- losses that the U.S. had previously pegged as ranging from $7 billion to $10 billion a year.

Airbus said in a statement released after the WTO ruling that it would take steps to ensure the aid complies with the decision, and predicted any eventual sanctions would be minor.

Damage Debate

“Despite Boeing’s rhetoric, it is clear that their position today is straightforward healthy: they have half the market and a full order book, they have clearly not been damaged by Airbus repayable loans,” Airbus CEO Tom Enders said.

Shares of Airbus reversed earlier gains to trade down as much as 1.8 per cent immediately after the ruling was published. The stock fell 0.9 per cent to 96.25 euros at the close in Paris. Boeing fell less than 1 per cent to US$342.10 at 11.43 a.m. in New York.

The U.S. and the EU have spent more than a decade wrangling over various government efforts to help Chicago-based Boeing and Toulouse, France-based Airbus defray billions of dollars in costs to design and produce commercial aircraft. Later this year, a separate WTO compliance panel is expected to deliver its decision as to whether the U.S. complied with the terms of a 2012 ruling against illegal U.S. tax subsidies that gave Boeing an unfair advantage.

The trade court in September ruled in Boeing’s favor in another case brought by the EU, overturning an earlier finding that US$8.7 billion in state aid to Boeing for making the 777X in Washington was a prohibited subsidy.