Government subsidies in the fray

By Aimée Turner

An issue over which trade diplomats on both sides of the Atlantic have been brawling for some time is the long-running tit-for-tat World Trade Organisation action launched in 2006 by the USA complaining about European Union government launch aid for Airbus products.

Europe made a robust response, challenging what it said was the lavish R&D support provided by the US Department of Defense and NASA to Boeing, not to mention state and local handouts from Illinois - senatorial home of a certain Barack Obama - Kansas and Washington.

Last July, Airbus partner governments said they were mulling over alternative funding mechanisms for the A350, but were waiting for clarity from the WTO rulings - the first of which is scheduled to be that of the earlier US case.

All the panels have said publicly they will complete their work in 2009, but while officials at the European Commission say they are working towards that schedule, the implications of a global recession have changed the financial landscape, possibly undermining the ability to find the wherewithal to fund future programmes.

Why? Because should the WTO rule that Airbus does receive unfair subsidies from the four shareholder governments of France, Germany, Spain and the UK, the European airframer may be forced to go to the market and face the reality of securing private rather than government capital at a time of global financial meltdown.

Airbus has reportedly abandoned discreet efforts to find a market-based alternative, according to a German minister, who expressed perhaps hitherto unvoiced concerns that government-based funding may no longer be so freely available as states need to prioritise, putting economic and social programmes first and perhaps even more needy sectors. Airbus must nevertheless find a solution in accordance with WTO rules.

Even if the WTO rules in Europe's favour in terms of its own case, as Boeing has pointed out, the staggered schedule of the two trade disputes means there are six months between the final decisions and six months in the present economic climate may be too long.

© Reed Business Information 2009

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