WTO rules against subsidies to Boeing

By Dana Hedgpeth
Washington Post Staff Writer
Thursday, September 16, 2010

The world's top trade court said in a preliminary ruling Wednesday that Chicago-based Boeing, the giant defense contractor, benefited from illegal subsidies from the U.S. government, according to officials in Congress, defense industry analysts and company executives who were briefed on the confidential findings.

Details of the decision by the World Trade Organization were delivered to officials at the Office of the U.S. Trade Representative in Washington and European Union officials in Geneva. A final ruling is expected in several months.

The WTO's ruling is part of a long-running disagreement between Boeing and its European rival, France-based Airbus, over government subsidies. The two companies are the major competitors for an estimated $35 billion contract to build new aerial refueling tankers for the U.S. Air Force. Three months ago, the WTO said that Airbus, which is a unit of European Aeronautic Defence and Space (EADS), had an unfair advantage when it received billions in low-interest government loans to develop aircraft.

The Pentagon has said the WTO's findings are not a factor in its procurement decisions. But analysts said the rulings could affect future funding for development of new aircraft for both companies in the lucrative aerospace market.

"Boeing got its hand slapped, but what happened to Airbus in the previous decision was like getting its hand cut off," said Loren Thompson, a defense industry consultant. (Thompson said he is not a paid adviser to EADS, Airbus or Boeing.) "Boeing can live without the subsidies the WTO identified. The amount of money we're talking about here [a few billion dollars] is like three weeks of sales for Boeing. But it is not clear that Airbus can live without the subsidies. They could be in trouble."

In the most recent case before the WTO, the European Union claimed that Boeing received about $20 billion in tax breaks, research aid and other subsidies from U.S. government agencies, including NASA, the Defense Department and state governments. In Wednesday's ruling, the WTO found that the subsidies were worth only a fraction of that amount, according to those who were briefed on the findings but spoke on the condition of anonymity because they weren't authorized to talk about the ruling.

Boeing said the WTO's ruling rejected "the vast majority of Europe's claims."

"Nothing in today's public reports on the European case against the U.S. even begins to compare to the [billions] in illegal subsidies that the WTO found last June that Airbus/EADS has received," the company said.

EADS said in a statement that the trade court had found Boeing to be "the beneficiary of anti-competitive and illegal subsidies."

Some members of Congress used the WTO decision to advocate for their favored tanker competitor.

Sen. Richard Shelby (R-Ala.), who supports Airbus because the company has said it would consider building a manufacturing plant in his state if it won the tanker competition, said Boeing supporters can "no longer rationally claim that this trade dispute is one-sided." Sen. Patty Murray (D-Wash.), a Boeing supporter, said the subsidies that were the subject of Wednesday's ruling "aren't comparable with the market-distorting, prohibited subsidies that Airbus has been found to use."

Ministers in France said the ruling "condemns massive subsidies to Boeing that violate WTO rules," according to the Associated Press.

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