US Europe Trade Wars: The Case of Boeing vs. Airbus
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Code : ITF0033B
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Region : :USA Europe |
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1992 Agreement on Large Civil Aircraft A ceiling on the amount of direct government support for new aircraft programmes. The ceiling was set at 33% of the total development costs. Such support (granted in the form of launch investments, which are repayable royalty-based loans) had to be repaid at an interest rate no less than the government cost of borrowing. Maximum period of repayment was 17 years. Moreover the repayment was contingent on meeting the sales targets... US Argument: State Support to Airbus The US alleged that Airbus received loans from the European governments to the tune of $35-40 billion for the production and development of A-380 at interest rates far below the market level. With the 1992 agreement providing favorable conditions for repayment, the US felt that it enabled Airbus to project high sales number for each of its aircraft. The Airbus management could shift the responsibility of market failure on the governments unlike the case of private companies like Boeing. Moreover, while the European governments would write off the debt in case of Airbus aircraft being a commercial failure, Boeing had nothing to fall back upon in a similar situation... Europe’s Counter Attack European response was swift. Alleging that Boeing too received subsidies from the US administration, they drew the attention to the fact that Boeing enjoyed tax incentives worth $3 billion in Washington State where its new aircraft, 787, was being developed. It also enjoyed tax breaks in Kansas, Oklahoma and few other states. They claimed that Boeing had received indirect subsidies to the tune of more than $20 billion for production of 787. They added that contracts received by Boeing for military research and NASA helped it to develop technological expertise at low cost. Boeing could exploit this expertise in adapting it for civilian aircraft, thus saving high R&D costs... |
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US Counter Response Stating that the tax breaks for Boeing were spread out for 20 years, the US claimed that the amount was much less compared to the European support to Airbus. Further, citing the example of EADS, Europe’s largest defense contractor (major shareholder in Airbus) (which got tax breaks of more than $8 million for locating their Euro copter assembly plant in Mississippi), they claimed that other Airbus suppliers located in those states too would be eligible for tax breaks...
