FAO: Hilditch

[Verbal]

Boeing Likely To Lose Ruling
Trade panel expected to find U.S. company received illegal subsidies
The Wall Street Journal 09/15/2010
Authors: Daniel Michaels and John W. Miller
(Copyright (c) 2010, Dow Jones & Company, Inc.)

BRUSSELS—The World Trade Organization is likely to rule Wednesday that Boeing Co. received some illegal subsidies from the U.S. government, said people familiar with the case, potentially leveling the debate with European rival Airbus and opening the door to trans-Atlantic negotiations on state support to plane makers.

The preliminary, confidential WTO finding will come more than one year after the WTO ruled in a similar case that Airbus had benefited from illegal European subsidies.

The European Union alleges that Boeing benefited from some $24 billion in tax breaks, research aid and export rebates from U.S. federal and state governments. Boeing officials say any finding of violations will be less significant than the ruling against Airbus, a unit of European Aeronautic Defence & Space Co.

Both sides are likely to declare victory in the complex case, as they did last year. But the U.S. is widely perceived to have prevailed in its case against Airbus, so EU officials could feel pressure to prove that the WTO's new ruling against Boeing is as severe, trade experts said.

"Boeing clearly won its case, even if it can still be appealed. Now the question is how much did Airbus win?" said Simon Lester, founder of WorldTradeLaw.net LLC, a Washington-based consultancy that isn't involved in the cases.

Either way, the report will give the rivals a clearer sense of how governments may legally support their plane makers. Executives at Boeing and Airbus have said they would like a global set of rules that eventually covers emerging rivals in Canada, Brazil, Japan, Russia and China.

The ruling may also influence a separate competition between Boeing and EADS to sell the U.S. Defense Department as many as 179 tanker airplanes for about $30 billion. EADS is offering a variant of its A330 passenger jet, an Airbus model the WTO said was improperly subsidized.

Boeing and Airbus operated under a 1992 deal on government aid until the U.S. government, under pressure from Boeing, renounced the pact in 2004 and took the EU to the WTO over support to Airbus. The EU retaliated by filing a similar case against the U.S. It is that case the WTO is expected to decide on Wednesday.

Officials from both sides have since said they want to talk, but have been unable to agree on terms for meeting. Europeans, in particular, have said they wouldn't negotiate in the period between the release of the two WTO rulings. "Only with two reports on the table is there a window for a balanced discussion, which will be the only way out of this destructive and anachronistic dispute," said Airbus spokeswoman Maggie Bergsma.

In a recent interview with The Wall Street Journal, EU Commissioner for Trade Karel De Gucht said the U.S. and EU should negotiate a settlement because other countries are putting government money in the industry. The two sides are "currently talking but not negotiating" over the issue, Mr. De Gucht said. "It is obvious you can't build a plane without public support."

U.S. trade representative Ron Kirk has said the U.S. is also prepared to negotiate. "We are more than happy to engage the European Union on a settlement of this, but it has to be with an understanding that any aid is going to have to be WTO-compliant," he told reporters in July.

The WTO's ruling last September, stating European governments had improperly loaned Airbus billions on preferential terms, was a publicity coup for Boeing.

EU officials have been frustrated because the ruling involving aid to Boeing has been delayed by many months.

European officials say that Boeing received about $24 billion between 1989 and 2004 from the Pentagon, the U.S. National Aeronautics and Space Administration and in tax breaks from the states of Kansas, Washington and Illinois.

Tax breaks are acceptable if they are deemed justified. And simply receiving government money isn't illegal in the WTO. The general rule for evaluating the legality of a subsidy is whether it benefited a specific company or industry—and hurt a rival. "It's not enough to show that it helped Boeing's bottom line," said Mr. Lester.

Research and development aid, for example, is often exempted, but not necessarily if the research is never published, isn't conducted by a university and is used solely for commercial purposes.

[Verbal]

Boeing Releases Statement in Advance of WTO Interim Decision

CHICAGO, Sept. 15 /PRNewswire/ -- Boeing today released the following statement regarding the impending interim decision by a World Trade Organization (WTO) panel in DS 353, the formal complaint the European Union brought in 2006 against alleged U.S. government subsidies to Boeing:

"We expect the WTO later today to issue a preliminary ruling on charges the EU has made against various U.S. practices at the state, local and federal levels. This ruling follows an earlier final WTO ruling by a separate panel in June that unequivocally condemned European assistance to Airbus – notably the product-development subsidies known as launch aid – as illegal and harmful to U.S. aerospace interests.

"We look forward to learning how the WTO has ruled in today's preliminary decision on U.S. practices, none of which have the market-distorting impact of launch aid nor even approach the sheer scale of European subsidy practices. In June, the WTO held in a case against the EU that Airbus had received illegal subsidies totaling more than $20 billion in principle. Launch aid, which represented the lion's share of the involved illegal aid (roughly $15 billion), is unique to Airbus, unparalleled within U.S. industry, and – as the WTO has confirmed – harmful to U.S. aerospace interests and the American worker.

"To date, Airbus and its government sponsors have defiantly resisted abandoning launch aid. Media reports indicate that plans remain in place to provide billions of Euros of launch aid for the A350, a product that will compete with the Boeing 777 and 787. Unless that money is provided on full commercial terms, that would be an incomprehensible step in light of the recent ruling against launch aid and the outstanding obligation under WTO rules that Airbus repay the $4 billion in illegal launch aid it received for the A380, or restructure the A380's financing to proven commercial terms.

"We have full confidence in WTO processes and its dispute-resolution procedures. The U.S. government's actions in remedying European concerns with FSC/ETI last decade demonstrate its approach to obligations under WTO findings. Likewise, we fully expect Airbus/EADS and the EU to act in the same way, making good on their end of the WTO bargain."

[David Hilditch]

Not sure what it is you're asking me..... We have covered this intensely boring topic in many previous threads.

[Verbal]

Agree. It is more boring than watching paint dry.

I will PM you with some "insider" info.