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U.S. Trade Representative Kirk Announces U.S. Victory in WTO Aircraft Dispute

Washington, D.C. – United States Trade Representative Ron Kirk announced today that the United States has prevailed in a World Trade Organization (WTO) dispute over claims by the European Union (EU) related to The Boeing Company. The WTO Appellate Body rejected claims that the United States has provided massive trade-distorting subsidies to Boeing and affirmed a dispute settlement panel’s March, 2011 finding that most of the programs challenged by the EU were not subsidies. Further, the Appellate Body affirmed that the value of WTO-inconsistent subsidies was far below what the EU alleged.

“This decision is a tremendous victory for American manufacturers and workers – and demonstrates the Obama Administration’s commitment to ensuring a level playing field for Americans,” Ambassador Kirk said. “It is now clear that European subsidies to Airbus are far larger – by multiples – and far more distortive than anything that the United States does for Boeing. The United States is ready to address all of the WTO findings, and we expect Europe to do the same. Airbus is a mature, highly capable company with ready access to commercial financing. It doesn’t need the launch aid that European governments are continuing to provide. It is time for European governments to get out of the way and let Boeing and Airbus compete on even terms.”

Today’s decision stands in stark contrast to the Appellate Body’s finding in May, 2011 that the EU gave Airbus $18 billion in subsidized funding, which resulted in lost market share and lost sales involving 342 large civil aircraft produced in the United States. In today’s findings, the comparable figures were between $3 and $4 billion in U.S. subsidies, and lost sales of just slightly more than 100 aircraft.

In its report last year, the Appellate Body found that massive grants by the EU of launch aid, a form of low-cost financing that the recipient does not have to repay if its products fail, was responsible for Airbus’ ability to launch aircraft models competitive with Boeing. The U.S. measures covered by the Appellate Body’s findings today consist of research funded by NASA and the Department of Defense (DoD), along with tax breaks granted by the state of Washington and city of Wichita.

The WTO Dispute Settlement Body is likely to adopt this report at a meeting later this month. The United States will then have six months to come into compliance with the WTO rulings.

BACKGROUND

The Boeing Company, the only U.S. producer of large civil aircraft (generally with 100 or more seats), is the largest single U.S. exporter. Boeing is headquartered in Chicago, IL, and has major facilities around the country. The company employs more than 157,000 people, and had revenue of $31.8 billion from the sale of commercial aircraft in 2010. Boeing is the largest manufacturer of commercial jetliners and military aircraft, with additional capabilities in helicopters, electronic and defense systems, missiles, satellites and advanced information and communications systems.

On October 6, 2004, the EU requested WTO dispute settlement consultations with the United States regarding measures affecting trade in large civil aircraft. The WTO established the dispute settlement panel on February 17, 2006 and the panel issued its findings in March of 2011. It rejected most of the EU claims that the United States conferred subsidies of $19 billion on Boeing between 1989 and 2006, finding that NASA and DoD together provided research subsidies of $2.7 billion and that Washington state accorded tax benefits of approximately $14 million. The panel also found that the federal government had provided income tax benefits of $2.2 billion through the Foreign Sales Corporation and Extraterritorial Income (“FSC/ETI”) laws. However, it recognized that those measures were covered by an earlier WTO ruling, and did not recommend that the United States remove them.

On April 1, 2011, the EU appealed certain aspects of the panel’s report and on April 28, 2011, the United States filed cross appeals on certain aspects. Hearings took place before the WTO’s Appellate Body on August 16-19, 2011, and October 11-14, 2011. In its final report today, the Appellate Body made the following findings:

• The panel erred in its analysis of whether NASA and DoD research funding was a subsidy. However, the Appellate Body affirmed the panel’s subsidy finding with regard to NASA research funding and DoD research funding through assistance instruments on other grounds. The Appellate Body declared the panel’s findings with regard to DoD procurement contracts moot, but made no further findings.

• The panel correctly found that NASA and DoD rules regarding the allocation of patent rights were not, on their face, specific subsidies. The Appellate Body found that panel should have addressed the EU allegations of de facto specificity, but was unable to complete the panel’s analysis of this issue.

• The panel correctly found that Washington state tax measures and industrial revenue bonds issued the city of Wichita were subsidies.

• The panel erred in concluding that the WTO Dispute Settlement Body was not obligated to initiate information-gathering procedures requested by the EU, but this error did not require any modification in the panel’s ultimate findings.

• The panel correctly concluded that NASA research funding and DoD funding of research through assistance instruments caused adverse effects to Boeing.

• The panel erred in analyzing the effects of the Wichita industrial revenue bonds separately from other tax measures. The Appellate Body grouped the Wichita measure with the other tax benefits.

• The panel erred in concluding that Washington state tax benefits, in tandem with FSC/ETI tax benefits, caused price lost sales, lost market share, and price depression of the Airbus A320 and A340 product lines. The Appellate Body found that the evidence before it justified a finding of lost sales only in two instances, involving 50 A320 airplanes.