The Hindu Business Line : Transatlantic dogfight on aircraft subsidies

THE 2003 Cancun Ministerial of the World Trade Organisation (WTO) floundered in the face of the developed countries' stubborn refusal to prune their massive agricultural subsidies that distort the global grain market.

If the subsidy on farm goods was the bone of contention between the developed and the developing countries, the very same issue — but this time, for aircraft manufacturers of the US and the European Union (EU) — has triggered a transatlantic skirmish that threatens to sour the traditional bonhomie between natural trading partners.

On October 7, the US lodged a complaint at the WTO on the EU support to Airbus, a consortium of aircraft manufacturers in Europe.

This has compelled the EU to request consultations with the US in the WTO on the massive subsidies granted to Boeing, the US aircraft manufacturing giant.

In the ensuing briefing to make each other's case stronger, the EU went for the jugular by stating that for many years, the US government has subsidised Boeing, mainly by disbursing R&D costs through NASA, the Departments of Defence and Commerce, and other government agencies. The EU alleged that since 1992 Boeing has absorbed around $23 billion of subsidies.

This, the EU said, is over and above the US government's grant to Boeing of around $200 million per year in export subsidies under the Extra-Territorial Income-Tax Exclusion Act (which succeeded the Foreign Sales Corporations legislation), despite a WTO ruling forbidding these subsidies as illegal.

According to the EU, the latest and most flagrant contravention is subsidies of about $3.2 billion — among others, in the form of tax reductions and exemptions, and infrastructure support — for the development and production of Boeing's 7E7, also known as "Dreamliner".

The European Commission appears to have piled up evidence of the US government's subsidies to Boeing, which if proved, would be violative of the WTO Agreement on Subsidies and Countervailing Measures. The EU further contends that the sops also violate the 1992 EU-US Agreement on Trade in Large Civil Aircraft, which regulates precisely the forms and level of government support the US and the EU provide to Boeing and Airbus respectively.

It is interesting to note that the US has refused to participate in the bilateral consultations stipulated by the 1992 agreement for more than two years.

But further to a US request only a few weeks ago, the EU agreed to discuss the issue of a possible revision of the 1992 agreement provided this could cover all forms of subsidies, including those used in the US, and that the US would bring any subsidies for the Boeing 7E7 in line with the 1992 Agreement.

When the plea for re-negotiations of the 1992 Agreement was under way, however, the US requested WTO consultations on European support to Airbus, implying that the US was never particularly serious on renegotiation of the 1992 agreement.

This mutual recrimination by trade majors using the WTO dispute settlement machinery for redress should be an eye-opener for all developing countries unable to dole out huge subsidies to hi-tech industries, leave alone to the deserving farm sector. And this apart, it is also a good opportunity to iron out asymmetries in the global trading system through the rule-based WTO.