Big WTO Decision on Aircraft Subsidies Coming Soon, But Don't Get Too Excited

According to multiple sources, a WTO panel will release a preliminary decision in the longstanding US-EU dispute over civil aircraft subsidies. The US alleges that the EU subsidizes Airbus, and the EU claims that the US subsidizes Boeing. Each Member has brought the other to the WTO. The dispute(s) could be the biggest in the short history of the WTO - potentially covering billions in government payouts to these companies. And the first ruling is expected on September 4th. As the AFP explains:

The World Trade Organization is to give a preliminary decision next week on whether government aid given to European aircraft manufacturer Airbus violated free commerce rules, Boeing said Tuesday.

"The WTO has informed the US Trade Representative (USTR) and the European Commission (EC) that the interim ruling will be handed to them the week of August 31," said Charlie Miller, a spokesman for the US company Boeing.

The US aircraft maker says the subsidies given to Airbus provide it with an unfair advantage and violated WTO rules.

"There is no specific date so far. The interim ruling is a confidential document that is only for the two parties -- the USTR and the EC and their legal advisors. Neither Boeing nor Airbus will receive copies -- nor, of course, the media," Miller said.

The United States filed a complaint before the WTO in October 2005, accusing several EU countries of violating WTO competition rules by giving Airbus government aid.

The European Union filed its own complaint in the same year, accusing the United States of violating WTO rules by providing Boeing with subsidies, which the organization has yet to rule on.

Neither company is a party to the complaints before the WTO, which only handles cases submitted by governments.

"Boeing is confident the WTO will rule that government launch aid to Airbus is illegal and inconsistent with WTO rules," Miller told AFP.

"A permanent and complete end to launch aid is necessary to ensure free and fair competition in the large commercial airplane market," he said.

At the end of June, US Trade Representative Ron Kirk said that the US government was willing to file additional complaints before the WTO if Airbus received any more government money.

Airbus has been seeking funding for the construction of its new A350 XWB aircraft and received loan pledges of around 400 million euros (573 million dollars) from Britain, and 2.5 million euros (3.6 million dollars) in total from France and Germany.

Boeing denies that the money it receives from the US federal government compares with the loans offered to Airbus.

"EU claims against the US are grossly overstated. Most alleged 'subsidies' to Boeing are legitimate US payments for services rendered," Miller said.

The decision should inject some drama in US-EU trade relations, and will definitely produce some tough words from USTR Kirk and his EU counterpart, Catherine Ashton. And Reuters reports that, while the decision will be mixed, the panel will likely find that the EU provided a significant amount of WTO-inconsistent subsidies to Airbus. But the AFP piece (and every other article I've seen reporting this news) really misses an important point: this panel ruling, while interesting for trade geeks like me, won't actually solve anything, and that the ultimate resolution of this long dispute is, in all likelihood, many years away. There are several reasons for this:

First, the actual panel ruling won't be out for months. It's only then that the WTO's "clock" will start ticking on the official EU and US responses.

Second, it's almost certain that at least one party, if not both, will appeal the panel ruling to the WTO's Appellate Body (AB). Only when the AB rules will a decision on the subsidy programs' legality under WTO rules be considered "final."

Third, given all of the procedural wrangling in this case, a final AB decision might not be out until 2011. Seriously. If you think this is crazy, just consider that the initial US request for consultations in this case came over four years ago. The maximum period under WTO rules between consultations request and panel decision is only nine months, and even with extensions, typical cases last about a year. Lots of delays in this case. Lots. And I'd expect them to continue.

Fourth, assuming the AB affirms the (likely) adverse panel ruling against the EU, the EU will have several months (a "reasonable period of time") to comply with the AB decision. Maybe even a year or more (and the parties can seek arbitration about what's "reasonable"). Even then, the US and EU could haggle about whether the EU's "compliance" was indeed legitimate. And this dance could go on and on (and on and...).

And finally, let's not forget that the preliminary panel decision on the EU's counter-complaint against alleged US subsidies to Boeing should be out in about 6 months, so we then get to repeat steps 1-4.

So while this preliminary decision is certainly interesting from an academic standpoint, and I'm sure that the US, EU, Boeing and Airbus are very interested to see the panel's reasoning, and the decision should produce some nice headlines and good quotes from Kirk and Ashton, the idea that a "permanent and complete end to launch aid" is anywhere on the near-term horizon is probably too optimistic (to put it mildly).