Daily Management Review

After WTO Ruling Against Airbus On Issue Of EU Funding, Threat Of Sanctions Issued By U.S. On Airbus


Following the ruling by the World Trade Organization that illegal government funding had been given to Airbus for development of jetliners, the European Union has bene threatened by the U.S. with imposing sanctions against it.
 It was found in 2016 that Airbus had been helped in its development of two Airbus twin-aisle models through subsidies by the EU. The verdict brought an end to a long drawn trade case. In another case, the EU had accused the U.S. of providing tax incentives of billions of dollars to Boeing and the international court is expected to rule on that case later this year.
The cases come amidst trade tensions between the U.S. and the EU over imposition of tariff on steel and aluminum imports by the U.S. The decision of U.S. president Trump to pull out of the Iran deal has also added to the tensions between the two. 
In the next phase of the very long trade case, the size of the tariffs that the U.S. would be entitled to impose to make up for loss in exports would be decided upon. While forcing countries and companies to drop payments that violate trade rules is not within the purview of the Geneva-based WTO, it can however allow counter measures to force governments to comply with its verdicts.
U.S. Trade Representative Robert Lighthizer said in a statement that the alleged government funding of Airbus has resulted in the aerospace industry in the U.S. loose "tens of billions of dollars in lost sales". "Unless the EU finally takes action to stop breaking the rules and harming U.S. interests, the United States will have to move forward with countermeasures on EU products," he said.
France, Germany, Spain and the U.K. were pulled up in the ruling and were accused of not being able to address aid for the launch of Airbus's A380 superjumbo, supporting its infrastructure and investments in equity – that were market distorting, and had unfairly advantaged the European plane maker. Further, below-market loans were awarded to Airbus for its A350 jetliner by the EU.
The panel ruled that this act had disadvantaged Boeing with respect to exporting its 747 jumbo jetliner and 787 Dreamliner into EU, Australia, China, South Korea, Singapore and the United Arab Emirates. An earlier finding that there had been no adverse impact on the market for single-aisle jet sales – which accounts for the single biggest source of profits for both Boeing and Airbus, by the EU.
Earlier, the U.S. had claimed annual losses to its aerospace industry of between $7 billion to $10 billion. But the extent of allowable U.S. tariffs would be decided through a WTO arbitration process.
Whjle predicting that sanctions, if any, would be minor, a pledge to abide by the decision was made by Airbus.
"Despite Boeing's rhetoric, it is clear that their position today is straightforward healthy: They have half the market and a full order book, they have clearly not been damaged by Airbus repayable loans," Airbus CEO Tom Enders said in a statement.