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Subsidy war could harm Boeing more than Airbus, UB researcher says
By JOHN DELLA CONTRADA
Contributing Editor
Boeing could jeopardize the launch funding of the new 7E7 aircraft should it press for an investigation of government subsidies received by rival Airbus because Boeing itself has received government subsides that violate world-trade agreements, according to David Pritchard, a research associate at the Canada-United States Trade Center in the UB Department of Geography.
"It's ironic that Boeing CEO Harry Stonecipher wants to step up complaints about Airbus 'subsidies,' considering Boeing's 7E7 will have up to $6 billion of 'subsidies' from Japan, Italy and the United States (Washington State)," says Pritchard, who studies the globalization of the commercial aircraft industry.
"But there are two major differences between an Airbus A380 'subsidy' and Boeing 7E7 'subsidy,'" Pritchard points out.
The Airbus subsidy is in the form of repayable loans with interest for aircraft development, which is legal according to the World Trade Organization, Pritchard says. The Boeing subsidy, on the other hand, is for aircraft production, which is prohibited by the WTO and which never will be paid back, he says.
"Boeing has the 7E7 program to lose and very little to gain by entering into a subsidy war with Airbus," Pritchard speculates. "If Boeing loses, is it prepared to pay back the subsidies and increase self-financing for the areas covered by the subsidies? If not, what happens to its 7E7 program?
"Why would Boeing want to risk that possibility?" he asks.
Boeing's midsize 7E7 "Dreamliner" is the first new jet the company has launched since 1990 and is scheduled to enter commercial service in 2008. The Airbus A380, a jumbo jet, is scheduled to start flying in 2006. Competition among the companies has heated up in recent years, with both complaining the other has received unfair government subsidies.
Pritchard's investigation of Boeing's 7E7 funding is described in the research paper "Industrial Subsidies and the Politics of World Trade: The Case of the Boeing 7E7," published with co-author Alan MacPherson, chair of the Department of Geography, in the spring issue of Industrial Geographer.
The paper is available at http:// igeographer.lib.indstate.edu/pritchard.pdf.
According to their research, subsidies received by Airbus for manufacture of its new A380 jetliner are legal under the 1992 US-EU Agreement on Trade in Large Aircraft and the 1994 WTO-Agreement on Subsidies and Countervailing Measures, which allows for receipt of a loan—repayable with interest—to be used for aircraft research and development. Boeing officials have said Airbus benefits unfairly from European subsidies of the A380.
"If the U.S., on the behalf of Boeing, were to file a complaint about Airbus with the World Trade Organization, I suspect the European Union, on behalf of Airbus, would file a retaliatory complaint against Boeing," Pritchard warns.
"I can't see Airbus holding back; Boeing is exposed on the issue of 7E7 production subsidies," he says.
Boeing's $3.2 billion subsidy from Washington State is especially vulnerable to WTO action, Pritchard says. State legislation approving the subsidy contains language clearly indicating that the subsidy is intended to fund production, which is prohibited by WTO regulations, he says.
"If Boeing's CEO, Harry Stonecipher, is going to 'raise the rhetoric' on the Airbus subsidy issue, one has to wonder what are his real motivations," Pritchard says.
"Should he convince the Office of the U.S. Trade Representative to take action against Airbus, this will lead to retaliatory complaint by the EU on the 7E7 production subsidies," he adds. "Is Boeing willing to bet the 7E7 program and the future of the commercial aircraft division on this rhetoric?"