WTO DisputeWTO Dispute

Overview for Congressional StaffOverview for Congressional Staff

By: Karl HennesseeSenior Legal Counsel, Litigation &

Regulatory Affairs, Airbus SAS

Popular Myth: “Subsidized Airbus” / Popular Myth: “Subsidized Airbus” / “Unsubsidized Boeing”“Unsubsidized Boeing”

The Airbus Reality:

Since 1992 and until the end of 2005, Airbus has repaid €5.85 billion, 40% more than received (€4.19 billion). Thus Airbus is a net ‘repayer’ not ‘borrower’ from EU governments.

Airbus currently repays €3-400M per annum to European governments in addition to normal corporate taxes.

By 2018, Airbus will have repaid more than €12 billion, and royalties will continue.

All programs are largely funded from internal cash flow.

The Boeing Reality:

$10 bn from NASA programs: Composites, HSR, AST, HPCC, AvSP, QAT, Vehicle Systems, R&T Base, etc.

$5 bn civil a/c benefit from DoD IR&D and DoD RDT&E

$5 mn from DoC ATP

$300+ mn civil a/c benefit from NASA/DOD patent waivers

$1.5 mn from DoL training grants

$2 bn from FSC

TOTAL SUPPORT: $18 bn over 16 years or over $1 bn per annum

….. Not including massive US subsidies package for the B787 (additional at least USD 5.7 bn) just in US!

TOTAL SINCE 1992: ca. $24 Billion

Legal Basis: Agreement on Subsidies Legal Basis: Agreement on Subsidies and Countervailing Measures (ASCM)and Countervailing Measures (ASCM)

WTO 1994 Agreement on Subsidies and Countervailing Measures (“ASCM”) empowers WTO Panels to investigate and authorize complaining jurisdiction

Elements of “Subsidy” under ASCM:a contribution …by a government or any public body within the territory of a Member which …confers a benefit

ASCM Subsidies can be either:“Actionable” subsidies “injure domestic industry” (based on “volume” and “effects” of subsidies and extent to which they “nullify or impair” and cause “serious prejudice”“Prohibited” subsidies are those “contingent … in law or in fact” upon export of the product or “use of … local content”

Basic Factual Substance of DisputeBasic Factual Substance of Dispute

DS 316

US accuses EC of Airbus subsidies:

“Launch Aid” (Loans repaid with interest and royalties)Debt Forgiveness / Equity Infusions Infrastructure supportEuropean Investment Bank Loans RTD&E support from Member States and EC

US seeks ruling that:

Some launch aid / EIB loans are “prohibited export subsidies”Other support “injured” Boeing / caused “adverse effect”

DS 353

EC accuses US of Boeing subsidies:

NASA and DOD Research and Development subsidiesPatent waivers and other technology transfersCross-subsidisation from NASA and DOD contractsLocal Revenue Bonds to Support Manufacturing and ResearchTraining Grants & Administrative FacilitationWA 787 State tax & incentive package

EC seeks ruling that:

WA state aid is “prohibited export subsidy”Other support caused “adverse effect”

Boeing: “Launch Aid is a massiveBoeing: “Launch Aid is a massivesubsidy”…. But Wait!subsidy”…. But Wait!

Launch Aid is a subsidy not available in the commercial market

Fact: Many Airbus and Boeing suppliers work on precisely the same basis (shared risk) and similar terms to European government Loans.

Fact: Boeing used the same system in the United States for the SST and continues to use the same system in Japan, as it has for over 20 years.

Boeing Claim:

Airbus has received $35, $100, $205 Billion in ‘benefit’ from

Launch Aid

xxBoeing Claim:

Fact: Since the 1992 LCAA, Airbus is a net repayer, not a net borrower (40% more repaid than borrowed).

Fact: Boeing has hired (and fired?) a series of economic “experts” to come up with its increasingly outlandish figures

Fact: This figure is more than 8 times the capitalisation of EADS, or roughly 12 times the net assets of EADS, USD 18.4 billion.

Fact: If the Boeing methodology were to be applied to the federal, state and local subsidies benefiting Boeing, the amount challenged by the EU would be not USD 24 billion, but rather USD 305 billion.

Boeing: “NASA contracts are Boeing: “NASA contracts are purchases of services” …. But purchases of services” …. But Wait!Wait!

National Aeronautics and Space Act of 1958 (“Space Act”)Enumerated objectives:

“[t]he improvement of the usefulness, performance, speed, safety, and efficiency of aeronautical and space vehicles” and “[t]he preservation of the United States preeminent position in aeronautics and space through research and technology development related to associated manufacturing processes.”

Whether developed through research contracts or Space Act Agreements, Boeing generally receives all intellectual property

rights to the developed technologies

Boeing: “NASA and DoD work do not Boeing: “NASA and DoD work do not provide benefits for civil aircraft”…. provide benefits for civil aircraft”…. But Wait!But Wait!

“The NASA Advanced Subsonic Technology (AST) Composite Wing Program was established to demonstrate the feasibility (cost and weight) of fabricating composite primary wing structures for future commercial transport aircraft. It is understandable that the future composite wing box for commercial aircraft will be somewhat different from the AST composite wing, but it is believed that many of the obstacles have been evaluated in the AST program.”Michael Karal: “AST Composite Wing Program,” NASA CR 2001-210650, March 2001, p. 22.

“[The ACT Program is aimed to] increase the competitiveness of the U.S. aeronautics industry by putting the commercial transport manufacturers in a position to expand the application of composites … to wings and fuselages.”NASA ACT Budget Estimates, FY 1997, SAT 4-21.

“[DoD's Joint Strike Fighter (JSF) / CAI program] matur[ed] a number of fabrication processes.“ Butler: Composite Affordability Initiative, April 2000, p. 4.

“As a matter of discipline, Boeing applies lessons learned across the enterprise. Therefore, programs such as the … 7E7 Dreamliner are clearly benefiting from the new technologies and processes refined and validated on the X-32 [JSF] program.” Boeing Frontiers, “The Value of Lessons Learnt,” Volume 02, Issue 08, December 2003/January 2004.

Boeing: “Boeing is FSC Compliant and Boeing: “Boeing is FSC Compliant and Receives no Benefit from Kansas Receives no Benefit from Kansas Subsidies”…. But Wait!Subsidies”…. But Wait!

US Congressional action puts Boeing into compliance following numerous GATT and WTO condemnations of the FSC scheme as a prohibited export subsidy

Fact: A 2006 Chief Counsel IRS Memorandum allows Boeing to take these prohibited tax breaks even after the end of 2006, the apparent end of all benefits under the FSC / successors.

Fact: Boeing uses these benefits to lower its prices in competitions outside the US.

Boeing Claim:

It is a supplier, and not Boeing, that “benefits” from the Kansas State and Wichita Bonds

Boeing Claim: Fact: Boeing negotiated, defined and put into place both Kansas bond schemes (funded by tax dollars) before selling its Wichita facility to Onex/Spirit in 2005.

Fact: Boeing simultaneously sold its facility and executed long-term supply agreements that capture the benefits of these subsidies through 2024.

Fact: Boeing still controls Wichita tooling and IP

Fact: KDOC stills calls these bonds “Boeing Bonds”

Quo Vadis?Quo Vadis?

Only one complainant ever lost a WTO case

No legal “set-off” of retaliation

Brazil / Canada aircraft disputes

Already existing retaliation rights

Boeing evasion of six successive GATT / WTO Rulings on FSC, ETI, AJCA ….

US / EC Trade relationship remains the most important for either side

Common ground on other topics in trade, security and others spheres

Activist third parties - Cui Bono? …

B767

Japanese Launch-Aid Funding Share of Development Costs

Japanese

Share of

Boeing Programs

B777 B787

Boeing and JapanBoeing and Japan

Any Questions?