WTO Says U.S. Gave at Least $5.3 Billion Illegal Aid to Boeing

Boeing Co. (BA) received at least $5.3 billion in illegal U.S. subsidies that gave it an unfair advantage over rival Airbus SAS, World Trade Organization judges ruled, backing a European Union complaint.

Judges in Geneva today confirmed previously confidential findings that the U.S. provided aid to Chicago-based Boeing through federal research grants and state support in developing aircraft including the 787 Dreamliner. Airbus parent European Aeronautic, Defence & Space Co. said the aid to Boeing cost it $45 billion in lost sales and lower prices from 2002 to 2006.

The panel report, which comes nine months after the WTO concluded Airbus had received billions of euros in low-interest government loans from European governments, is the latest ruling in the six-year-old dispute between the world’s two largest commercial planemakers and may encourage the U.S. and the EU to negotiate a settlement.

“This report shows that Boeing has received huge subsidies in the past and continues to receive significant subsidies,” EU Trade Commissioner Karel De Gucht said in a statement in Brussels. “These subsidies have resulted in substantial harm to EU interests, causing Airbus to lose sales, depress its aircraft prices and unfairly lose market share to Boeing.”

WTO judges ruled on EU arguments that Boeing benefited from more than $10 billion in unfair assistance from both NASA and the U.S. Defense Department. The EU also claimed illegal aid to Boeing by states including Washington, Kansas and Illinois.

Judges found that Boeing got $5.3 billion to $6 billion in subsidies between 1989 and 2006 and $3 billion to $4 billion in potential future aid based on Washington state tax measures.

NASA Programs

This includes NASA research and development programs worth $2.6 billion in subsidies between 1989 and 2006, Department of Defense programs with aid as high as $1.2 billion in the same period, three Washington state tax breaks worth up to $4 billion from 2006-2024 and foreign sales corporation export subsidies valued at $2.2 billion until 2006.

Compared with the ruling over Airbus aid, today’s panel report “reveals a market distorted by Airbus’ practices, with illegal launch aid being the key discriminator,” J. Michael Luttig, Boeing executive vice president and general counsel, said in a statement. Boeing wants its bigger rival to reimburse the illegal portion of so-called launch aid until repayments reach what they would have been had the loans been made at market rates.

In their June 30 public decision backing the U.S., WTO judges found that Airbus benefited from the support of European governments, with subsidies for the A380 topping the list of violations. Toulouse, France-based Airbus overtook Boeing in the market for commercial aircraft in 2003.

Negotiated Solution

The EU had sought to prevent the cases from going to the WTO, calling instead for a negotiated solution that it’s continued to recommend. The U.S. has expressed a willingness to negotiate a settlement provided the EU first agrees to scrap launch aid.

The dual cases have become more important as rivals from China, Canada and Brazil emerge and the rulings may set industry-defining guidelines for government support in the $70 billion civil-aviation industry.

The U.S. and Europe filed counter-cases at the WTO in 2004 after the administration of former President George W. Bush unilaterally walked out of a 1992 aircraft-aid accord with the EU. The dispute is the largest ever before the WTO, which can authorize retaliatory sanctions against countries that fail to comply with its rulings.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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