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

The European Communities’ WTO Case against the US

One day after the U.S. initiated litigation in the WTO against EC provided EADS/Airbus subsidies, the EC reacted by initiating a separate case against claimed U.S. subsidies to Boeing. The EC case makes three main subsidy challenges: Infrastructure grants; Tax breaks, especially from Washington state; R&D contracts from the U.S. government, especially NASA and Department of Defense contracts.⁷⁴

The EC case is built on a number of false calculations, including the mathematic impossibility that Boeing received NASA subsidies valued greater than the total value of all contracts to all contractors during the time in question.⁷⁵ Furthermore, none of the challenges is comparable to the launch aid received by EADS/Airbus. As such, it would be surprising if more than a few of the challenged measures were found to be specific subsidies. Moreover, since the WTO threshold to determine adverse effects is so high, it is fairly certain that even if the U.S. is determined to have provided some limited amount of specific subsidies to Boeing, none will be actionable or prohibited.

Given the above, it appears the EC WTO case against the U.S has two main purposes. First it provides the EC a forum by which to make sweeping claims that all aerospace companies are subsidized and further argue that such subsidies should not be illegal. Second, the EC’s case has effectively drawn U.S. resources and energies way from challenges to EADS/Airbus subsidies.

On 7 July 2010, the WTO reported that it expects to issue its confidential interim report to the EC and U.S. governments by mid-September 2010, and that it will not complete its work until the first half of 2011.⁷⁵ If the EC complaint progresses on a similar timeline as the U.S. complaint, the earliest the public release of the ruling can be expected is Summer 2011. Until that time EC and EADS/Airbus claims of victory should greeted with the same great skepticism as has now been proven to have been appropriate for their similar, and completely disproven, claims in the U.S. case against EADS/Airbus own subsidies.

Conclusion

Lockheed Martin CEO Robert J. Stevens issued a warning to European protectionists in 2008 while addressing a conference on NATO in the Next Decade:

The notion that European markets should first be “protected in order to be strengthened” is misguided. Protectionism is not now, and has never been, a substitute for competitive strength. With each passing opportunity, those companies who linger under this veil will only grow weaker — until they will be quite literally “protected to death.”⁷⁶

Stevens went on to mention the number of European contractors competing in the United States defense market as proof of American openness and commitment to the free market, even in the highly-sensitive area of military procurement. Indeed, neither the U.S. military or American companies have a “protectionist problem” of the sort that is commonplace in Europe. However, while Stevens’ warning of companies being “protected to death” may certainly have merit, it does not always hold true. As this paper has shown, EADS/Airbus’ government support and protection is so extensive and so ingrained in EU member industrial policy that unless the U.S.— and WTO—take forceful action, EADS/Airbus will continue to thrive at the expense of U.S. aerospace companies and workers for the foreseeable future.

This information is not news to the U.S. Government. The toll EADS/Airbus has taken on America’s economy has been evident as far back as 1985, when President Regan established a White House team to identify unfair trade practices and take action against them. European subsidies and protection of Airbus was quickly identified as the first target.⁷⁷ Unfortunately, then, as now, most U.S. government officials chose to look the other way. In 1985 the reason given was the fear that NATO would be shattered if Europe was taken to task over its subsidies of Airbus; today, it is the shortsighted view of some in the Pentagon that if they can get a lower initial cost because a foreign government is subsidizing an EADS product, then so much so the better.

The U.S. Congress has been forced to take action given this policy vacuum. In May 2010, the House in a 410-8 vote passed a defense-bill amendment that requires the Pentagon to review any subsidies affecting the tanker contest and to determine whether they provide “an unfair competitive advantage to any bidder.”  Senate supporters plan to get identical language attached to their defense bill before the 2010 session ends.

American companies and their workers expect a more carefully planned U.S. government procurement policy and deserve action against the unfair trade practices of EADS/Airbus.  The Pentagon and the private sector received very clear guidance in the June 2010 WTO decision, overwhelmingly against EADS subsidies and launch aid, which arguably should have disqualified them for this second round of bidding on the tanker project.  The President’s 2010 Trade Policy Agenda provides equally sensible guidance that should be used on the tanker bid:

“The American people expect firm pursuit of our rights in the rules-based trading system in order to ensure fair competition with global trading partners. Americans succeed in global completion when partners play by the established rules…”⁷⁸

With the release of the conclusive WTO ruling, it should finally be clear that EAD/Airbus’ government owners do not play by these “established rules.” It should also be clear to all Americans, in government and outside it, that the actual cost of EADS/Airbus aircraft is far higher than the list price being considered. The cost to our national prosperity of allowing EADS/Airbus to compete for U.S. government contracts without conditions—or without consideration of the subsidies it receives— is simply unaffordable. ■