Competition between Airbus and Boeing has been characterised as a duopoly in the large jet

airliner market since the 1990s. This resulted from a series of mergers within the
global aerospace industry, with Airbus beginning as a European consortium while the
American Boeing absorbed its former arch-rival, McDonnell Douglas in a 1997 merger. Other
manufacturers, such as Lockheed Martin and Convair in the United States and British
Aerospace, Dornier and Fokker in Europe, were no longer in a position to compete effectively
and withdrew from this market.
In the 10 years from 2004 to 2013, Airbus has received 8,933 orders while delivering 4,824, and
Boeing has received 8,428 orders while delivering 4,458. Competition is intense; each company
regularly accuses the other of receiving unfair state aid from their respective governments.
Since October 2004, the EU and US have been contesting at the WTO their
Governmentsrespective support to their aerospace industries. Both WTO challenges relate to
alleged WTO-incompatible support to respectively Airbus and Boeing over a 20 to 30 year
period.
Prior to these WTO challenges, US and EU government support to their aircraft producers had
been regulated by the so-called "Bilateral EU-US Agreement on Trade in Large Civil Aircraft".
This agreement, concluded in 1992, allowed each party to provide a certain level of support to
their respective aircraft industries.

History
Until the late 70s the US enjoyed almost a de facto monopoly in the Large Civil Aircraft
(LCA) sector. The Airbus consortium (created in 1969) started competing effectively in the
80s. At that stage the US became concerned about the European competition and the
alleged subsidies paid by the European governments for the developments of the early
models of the Airbus family. This became a major issue of contention, as the European side
was equally concerned by subsidies accruing to US LCA manufacturers through NASA and
defenceprogrammes
The EU and the US started bilateral negotiations for the limitation of government subsidies
to the LCA sector in the late 1980s. Negotiations were concluded in 1992 with the signature
of the EC-US Agreement on Trade in Large Civil Aircraft which imposes disciplines on
government support on both sides of the Atlantic which are significantly stricter than the
relevant WTO rules: Notably,. the Agreement regulates in detail the forms and limits of
government support, prescribes transparency obligations and commits the parties to
avoiding trade disputes



1992 Agreement
The agreement puts a ceiling on the amount of direct government support (33% of the total
development costs) for new aircraft programmes. It establishes that such support (granted
in the form of launch investments, which are repayable royalty-based loans) will be repaid
at an interest rate no less than the government cost of borrowing and within no more than
17 years. Basically, this discipline applies to the form of government support mainly in use
in Europe.
Also the agreement establishes that indirect support (e.g. benefits provided for aeronautical
applications of NASA or military programmes) should be limited to a 3% of the nation's LCA
industry turnover. This discipline is primarily targeted at the support system in use in the
US. In contrast to the European system of repayable launch investment there is no
requirement for indirect support to be reimbursed and the generous ceiling of 3% is
calculated on the larger basis of the turnover of the LCA industry and applies per individual
year.

European Government Support
European governments provide repayable launch investment not grants - to Airbus at the
time of program launch. European government investments support the European
technology research & development sector, just as US government R&D schemes have
sought to do, through NASA, FAA, Department of Defence (DoD) and export tax relief
programs. However, EU governments spend three times less on aerospace R&D than the US
government.

U.S. Government Subsidies
U.S. government subsidies, mostly in the form of military and NASA contracts, research and
development expenditure and tax subsidies have enabled the U.S. aerospace industry to
maintain its global dominance for more than 50 years.
U.S. government subsidies, mostly in the form of military and NASA contracts, research and
development expenditure and tax subsidies have enabled the U.S. aerospace industry to
maintain its global dominance for more than 50 years.

--Unlike European launch investment, none of this support has to be repaid - and in fact is
not repaid

--Since 1992, Boeing has received around $ 23 billon in subsidies from the U.S.
government.


--The total U.S. Government indirect support of the U.S. LCA industry in FY 2003 alone was
upto$2.74 billion.
This represents around 11.9% of the FY 2003 commercial turnover of the U.S. LCA
industry.

--Since 1990, Boeing has outsourced increasingly large shares of its civil aircraft
programmes to other countries, e.g. Japan (more than 60% of the 7E7). The governments
of these countries subsidize these shares, such that Boeing's programs also receive
substantial foreign subsidies.

--Since 1990 Boeing has avoided paying around more than $1.2 billion in federal taxes
through the use of off-shore Foreign Sales Corporations (FSC). This is a direct (and illegal)
government subsidy prohibited by international rules.

The real issue is one of competitiveness: From 2001 to 2003, Boeing has invested only $2.8
billion of its own funds in commercial aircraft R&D and capital expenditure compared to $9.4
billion by Airbus. Lack of R&D and capital investment, has meant that Boeing has not
launched any new programs since 1990.

Since 1985, the United States has been involved in several major rounds of negotiations
with the Airbus partner governments and the Commission with the objective of achieving
greater disciplines over the subsidies provided to Airbus. In 1989 and 1991 the United
States brought two cases at the GATT challenging Airbus subsidies. The first case
challenged a German program that offset adverse exchange rate fluctuations on sales of
Airbus aircraft, and the second, broader case challenged overall subsidies to the Airbus
consortium. The first case ended in a victory for the United States after a GATT panel
determined that the exchange rate scheme constituted a prohibited export subsidy. The EC
blocked adoption of the panel report, which was permitted before the creation of the WTO,
but Germany subsequently withdrew the scheme.

The United States withdrew the second case in July 1992 after the two sides negotiated a
bilateral agreement limiting government support for large civil aircraft programs. The
agreement included a prohibition of future production support and a limitation on the share
of government support for the development of new aircraft programs to 33 percent of the
projects total development costs.

After 12 years, the United States believes the 1992 agreement has outlived its usefulness
and needs to be terminated. Expected to lead to a progressive reduction of subsidies, the
1992 agreement has instead become an excuse for EU governments to continue subsidizing
Airbus. The $3.2 billion in launch aid that the EU governments have committed for the new
Airbus A380 is the largest amount of funds committed for a single project. The EU has
provided further loans and infrastructure that has pushed the total amount of A380
subsidies to approximately $6.5 billion. Airbus is now contemplating the launch of another
competitor (A350) to the recently-launched Boeing 7E7, and has indicated its intentions to
request subsidies for that aircraft as well.

In addition, Airbus market share has increased markedly over the agreements lifetime. Its
share of the market had already increased from 16 percent in 1988 to 30 percent in 1990,
prior to the agreements signing; it reached 50 percent in 1999. In the meantime,
McDonnell Douglas market share dropped precipitously, culminating with the firms
purchase by Boeing in 1997. Airbuss success in gaining additional market share is
exemplified by the goals it has set for itself over its lifetime: In 1975, Airbus aimed to gain
a 30 percent share of the world aerospace market. By 1994, it had declared that nothing
less than 50 percent would do. It has exceeded that goal.

Efforts to Negotiate a New Bilateral Agreement
While the United States remains committed to resolving this matter through the negotiation
of a new bilateral agreement, we have concluded that filing a WTO case at this time is
necessary to ensure that, one way or another, the playing field is leveled. The WTO offers
an agreed multilateral forum for resolving trade disputes according to agreed rules.
Controversies[edit]


The Boeing 787 Dreamliner (above) will compete with the Airbus A330 and the Airbus A350 in the medium to long
range market.
Subsidies[edit]
Boeing has continually protested over launch aid in the form of credits to Airbus, while Airbus has
argued that Boeing receives illegal subsidies through military and research contracts and tax
breaks.
[47]

In July 2004 Harry Stonecipher (then CEO of Boeing) accused Airbus of abusing a 1992 bilateral
EU-US agreement regarding large civil aircraft support from governments. Airbus is given
reimbursable launch investment (RLI, called "launch aid" by the US) from European governments
with the money being paid back with interest, plus indefinite royalties if the aircraft is a commercial
success.
[48]
Airbus contends that this system is fully compliant with the 1992 agreement
and WTO rules. The agreement allows up to 33 per cent of the program cost to be met through
government loans which are to be fully repaid within 17 years with interest and royalties. These
loans are held at a minimum interest rate equal to the cost of government borrowing plus 0.25%,
which would be below market rates available to Airbus without government support.
[49]
Airbus claims
that since the signing of the EU-U.S. agreement in 1992, it has repaid European governments more
than U.S.$6.7 billion and that this is 40% more than it has received.
Airbus argues that pork barrel military contracts awarded to Boeing (the second largest U.S. defence
contractor) are in effect a form of subsidy (see the Boeing KC-767 vs EADS (Airbus) KC-45 military
contracting controversy). The significant U.S. government support of technology development
via NASA also provides significant support to Boeing, as do the large tax breaks offered to Boeing,
which some claim are in violation of the 1992 agreement and WTO rules. In its recent products such
as the 787, Boeing has also received substantial support from local and state
governments.
[50]
However, Airbus' parent, EADS, itself is a military contractor, and is paid to develop
and build projects such as the Airbus A400M transport and various other military aircraft.
[51]

In January 2005, European Union and United States trade representatives Peter
Mandelson and Robert Zoellick agreed to talks aimed at resolving the increasing tensions. These
talks were not successful, with the dispute becoming more acrimonious rather than approaching a
settlement.
World Trade Organization litigation[edit]
"We remain united in our determination that this dispute shall not affect our cooperation on wider bilateral and
multilateral trade issues. We have worked together well so far, and intend to continue to do so."
Joint EU-US statement
[52]

On 31 May 2005 the United States filed a case against the European Union for providing allegedly
illegal subsidies to Airbus. Twenty-four hours later the European Union filed a complaint against the
United States protesting support for Boeing.
[53]

Increased tensions, due to the support for the Airbus A380, escalated toward a potential trade war
as the launch of theAirbus A350 neared. Airbus preferred the A350 program to be launched with the
help of state loans covering a third of the development costs, although it stated it will launch without
these loans if required. The A350 will compete with Boeing's most successful project in recent years,
the 787 Dreamliner. EU trade officials questioned the nature of the funding provided by NASA,
the Department of Defense, and in particular the form of R&D contracts that benefit Boeing; as well
as funding from US states such as Washington, Kansas, and Illinois, for the development and launch
of Boeing aircraft, in particular the 787.
[54]
An interim report of the WTO investigation into the claims
made by both sides was made in September 2009.
[55]

In September 2009, the New York Times and Wall Street Journal reported that the World Trade
Organization would likely rule against Airbus on most, but not all, of Boeing's complaints; the
practical effect of this ruling would likely be blunted by the large number of international partners

engaged by both plane makers, as well as the expected delay of several years of appeals. For
example, 35% of the Boeing 787 Dreamliner is manufactured in Japan. Thus, some experts are
advocating a negotiated settlement.
[56]
In addition, the heavy government subsidies offered to
automobile manufacturers in the United States have changed the political environment; the
subsidies offered to Chrysler and General Motors dwarf the amounts involved in the Airbus-Boeing
dispute.
[57]

In March 2010, the WTO ruled that European governments unfairly financed Airbus.
[58]
In
September 2010, a preliminary report of the WTO found unfair Boeing payments broke WTO rules
and should be withdrawn.
[59]
In two separate findings issued in May 2011, the WTO found, firstly,
that the US defence budget and NASA research grants could not be used as vehicles to subsidise
the civilian aerospace industry and that Boeing must repay $5.3 billion of illegal
subsidies.
[60]
Secondly, the WTO Appellate Body partly overturned an earlier ruling that European
Government launch aid constituted unfair subsidy, agreeing with the point of principle that the
support was not aimed at boosting exports and some forms of public-private partnership could
continue. Part of the $18bn in low interest loans received would have to be repaid eventually;
however, there was no immediate need for it to be repaid and the exact value to be repaid would be
set at a future date.
[61]
Both parties claimed victory in what was the world's largest trade
dispute.
[62][63][64]

On 1 December 2011 Airbus reported that it had fulfilled its obligations under the WTO findings and
called upon Boeing to do likewise in the coming year.
[65]
The United States did not agree and had
already begun complaint procedures prior to December, stating the EU had failed to comply with
the DSB's recommendations and rulings, and requesting authorisation by the DSB to take
countermeasures under Article 22 of the DSU and Article 7.9 of the SCM Agreement. The European
Union requested the matter be referred to arbitration under Article 22.6 of the DSU. The DSB agreed
that the matter raised by the European Union in its statement at that meeting be referred to
arbitration as required by Article 22.6 of the DSU however on 19 January 2012 the US and EU jointly
agreed to withdraw their request for arbitration.
[66]

On 12 March 2012 the appellate body of the WTO released its findings confirming the illegality of
subsidies to Boeing whilst confirming the legality of repayable loans made to Airbus. The WTO
stated that Boeing had received at least $5.3 billion in illegal cash subsidies at an estimated cost to
Airbus of $45 billion. A further $2 billion in state and local subsidies that Boeing is set to receive
have also been declared illegal. Boeing and the US government were given six months to change
the way government support for Boeing is handled.
[67]
At the DSB meeting on 13 April 2012, the
United States informed the DSB that it intended to implement the DSB recommendations and rulings
in a manner that respects its WTO obligations and within the time-frame established in Article 7.9 of
the SCM Agreement. The European Union welcomed the US intention and noted that the 6-month
period stipulated in Article 7.9 of the SCM Agreement would expire on 23 September 2012. On 24
April 2012, the European Union and the United States informed the DSB of Agreed Procedures
under Articles 21 and 22 of the DSU and Article 7 of the SCM Agreement.
[68]

On 25 September 2012 the EU requested discussions with the USA, because of the non
compliance of the US and Boeing with the WTO ruling of 12 March 2012. On 27 September 2012
the EU requested the WTO to approve EU countermeasures against USA's subsidy of Boeing. If the
WTO approves and the discussions between the EU and USA fail, the EU wants permission to place
trade sanctions of up to 12 billion US$ annually against the USA. The EU believes this amount
represents the damage the illegal subsidies of Boeing cause to the EU