EADS/Airbus Government Ownership, Protection, Intervention & Subsidies: The Effect on American Free Enterprise and National Security

On infrastructure-related grants between 1989 and 2001 the WTO panel found that France, Germany and Spain provided more than one billion euros in illegal infrastructure subsidies, including the creation of land in Hamburg to allow Airbus to expand production facilities, extending an airport runway in Bremen to allow Airbus to transport wings to other facilities for aircraft assembly, and transforming agricultural land in Toulouse into industrial facilities for the assembly of the A380. Only the Toulouse area road improvements, the Broughton, Wales regional payment and the Andalusian government Puerto Santa Maria grant were found not to be specific subsidies.⁶⁷

The WTO panel found also that France and Germany provided billions of dollars of share transfers and equity infusions to Airbus between 1987 and 1998. The European Investment Bank (EIB) loans from 1988-2002 and the 1998 German Debt Settlement were found to be WTO compliant.

In the area of R&D, the WTO panel found that the EU, France, Germany, Spain and the UK provided over one billion euros in funding between 1986 and 2005 for research and development (R&D) directed specifically to the development of Airbus aircraft. The WTO ruled against dozens of individual grants made under five European Commission Framework Programs, French government R&D grants, German federal government grants under the LuFo I, II, III programs, German sub-federal R&D grants, Spanish research loans under the PROFIT and PTA programs and UK R&D grants under the CARAD and ARP programs.⁶⁸ Only the further German government commitment under the LuFo III program and the UK Technology program grants were not considered subsidies.⁶⁹

The WTO Process and Ruling Insights

The WTO report firmly establishes that the EADS/Airbus sponsor governments have undeniably distorted the market in favor of EADS/Airbus and adversely affected U.S. industry and U.S. interests. Surprisingly, EADS/Airbus and the EC initially claimed the ruling a victory.⁷⁰ A full understanding of the WTO dispute process and its technical aspects (not to mention the plain text of the ruling) exposes these claims.

One key to understanding the ruling is that the WTO definition of “injury” is that a company or industry must be damaged nearly beyond recovery—this is assessed under a “material injury” standard.  The WTO ruled that U.S. industry was not injured under this test, since Boeing remains a strong competitor in the industry.⁷¹ That U.S. industry’s harm did not meet the technical standard for “material injury” is of little consequence. To find the subsidies were illegal, the WTO had to find that the Airbus/EADS subsidies caused “adverse effects.” Adverse effects are demonstrated in a variety of ways (only one of which is by showing that industry has been injured to the point of there being nearly no conceivable recovery.) The WTO found that the European subsidies did cause adverse effects on multiple accounts. It declared the Airbus/EADS subsidies caused serious prejudice to U.S. interests. EADS/Airbus attempts to equate the “no injury” finding to a conclusion that no harm occurred is simply false^.72

A second key to understanding the ruling is that the WTO complaint process focuses mainly on a limited time prior to and during the complaint. In this case, while the WTO panel reviewed the whole 40 years of Airbus subsidies, it limited its main analysis to the years 2001 to 2006. Although it was easy for all to see that forty years of Airbus subsidies caused real harm to U.S. industry it is extremely hard to prove subsidies, in and of themselves, caused significant price undercutting, price suppression or depression in a short five year period. So while the WTO panel did conclude that it was apparent there had been significant price undercutting, suppression and depression in the marketplace, it was not willing to go further and to conclude that those effects had been directly caused by the subsidies in and of themselves.⁷³

A third key to understanding the ruling is remembering that the WTO process is lengthy and in the end the WTO enforcement power resides wholly in its power to authorize government to government retaliation. The EC has appealed the ruling against it and has filed its own WTO large commercial aircraft case against claimed U.S. subsidies. Together these actions ensure there that the launch aid trade dispute will continue for some time, though if the U.S. is prepared to take forceful action, retaliation could be implemented within a year.