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Trade disputes in the commercial aircraft industry: A background note

Abstract The long-running debate between the US and the EU over government supports for large commercial aircraft has recently boiled over into a major dispute involving the World Trade Organisation (WTO). While the two sides have currently backed off from what could be a very damaging WTO outcome, there are still wide differences over the legitimacy of government supports (direct or indirect) for Airbus and Boeing airliners. This paper: • Describes the background to the current dispute. • Analyses the 1992 US–EU Agreement on Large Aircraft Subsidies. • Outlines the WTO Agreement on Subsidies and Countervailing Measures and the decision by the US to mount an action under the WTO complaints procedures against launch investment for Airbus and the EU’s counter claim against Boeing. • Considers the precedents set by the WTO rulings on the Brazilian–Canadian dispute over regional jet supports. • Summarises the US–EU complaints to the WTO. • Considers potential outcomes and the implications for the civil aerospace industry on both sides of the Atlantic. • Analyses the wider issues surrounding government intervention in the aerospace sector. The paper views the dispute as a reflection of fundamental differences, based primarily on divergent economic doctrines and values, between the US and the EU states. There could be especially damaging consequences for the EU should the WTO rule against the systems of repayable launch investment used by the Airbus governments. But both sides could lose heavily from the affair and there is a good case for maintaining some form of direct government intervention in civil aerospace technology acquisition, even near market research, in support of environmental sustainability objectives.