Opinion: European funding fuels unfair competition between Airbus and Boeing

After dickering for seven years before the World Trade Organization, the Boeing Co. and its European rival, Airbus, finally got some action.

Not from the WTO. Germany did the trade group’s job for it.

The heart of this long-running trade dispute is “launch aid,” the subsidized loans that Airbus gets from its government backers in Germany, Britain, France and Spain. Because of their size and impact, these loans distort the market for commercial passenger jets more than any other subsidy. Boeing brought its case before the WTO in 2005 mainly to target the loans.

The nations backing Airbus have promised billions in launch aid to support a jet called the A350, despite WTO findings against previous sweetheart loans they made. This competitor to Boeing’s new 787 Dreamliner is supposed to take to the skies in the second half of 2014.

In a surprising move that puts a welcome spotlight on launch aid, Germany reportedly held back the final 600 million euros of loans that it had promised. Alas, the decision has nothing to do with restoring fair trade practices. Germany is withholding its contribution to ensure that it gets a fair share of the jobs from the aircraft manufacturing it subsidizes.

Nevertheless, even an internal European dispute over launch aid is a step in the right direction. Launch aid has got to go. The trade dispute between the world’s leading markers of commercial aircraft has gone on too long. It must be resolved before it erupts into an all-out trade war, which could happen in relatively short order, by WTO standards.

There is slow, and then there is WTO slow. Years can pass while the Geneva, Switzerland-based referee of the global marketplace forms its panels, translates documents and collects its thoughts. Eventually, it issues legalistic opinions that invite more bickering.

Action typically occurs when the threat of trade retaliation becomes real. The marathon Boeing-Airbus case will be no exception.

The WTO has found that Boeing received $5.3 billion in illegal government subsidies from 1989 to 2006, most in the form of tax credits and benefits from military research and development contracts. The group found that Airbus, over a longer period, received $18 billion in improper subsidies, most of it launch aid. The illegal subsidies to Airbus have been much larger than those granted to Boeing, and Boeing gets none of the preferential financing that Airbus receives.

Without launch aid, Boeing has to fund its new aircraft development at market interest rates. Its product launches therefore are more risky. If Airbus had to borrow on unsubsidized terms, it never could have introduced its planes as rapidly as it did to compete with Boeing. Launch aid greatly diminishes the market advantage that Boeing earned through innovation and risk-taking.

The WTO still isn’t at the point of allowing the U.S. to impose tariffs on European exports for the damage done to Boeing. But it’s getting closer. The prospect of billions of dollars in penalties assessed against companies that are bystanders in the aircraft dispute should finally make Europe get serious about reducing or eliminating launch aid. The best outcome: a broader transatlantic trade agreement further encouraging free trade between the U.S. and Europe. But that can’t be accomplished until Boeing and Airbus settle their differences.

Canada, Brazil, China, Russia, Japan and India all want to compete in the market for commercial jets, which is now dominated by just two companies. The U.S. and Europe have to establish sensible rules of competition.

(c)2012 Chicago Tribune. Distributed by MCT Information Services.