The organization's ruling essentially said the $20 billion Airbus received in low-interest, essentially risk-free loans from European governments to launch and sustain its civilian-airliner business constituted unfair subsidies.
The World Trade Organization (WTO) has taken one baby step with its recent ruling against Airbus subsidies. We still don’t know if this 15-year-old referee of global trade can really walk — and its obstacle course is about to get far more demanding than this long-running airplane dispute.
The organization’s ruling essentially said the $20 billion Airbus received in low-interest, essentially risk-free loans from European governments to launch and sustain its civilian-airliner business constituted unfair subsidies.
In other words, the very kind of trading practice the WTO was established to stop.
If the celebrations in Jet City are muted, it’s because the thousand-page-plus decision may take years to force binding action, if even then. The initial complaint was filed in 2004.
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Meanwhile, Britain, France, Germany and Spain were politely asked to remove the subsidies within 90 days. Nobody expects that to happen.
The Obama administration won’t risk a trade war by imposing tariffs on the European Union. We will muddle ahead as before.
Meanwhile, Airbus will push ahead with its complaint that Boeing is just a pot complaining about a kettle of the same color: that Defense Department contracts constitute an unfair American subsidy.
Boeing disputes this, and it’s easy to see why. Airbus parent EADS gets plenty of defense dollars, too. It would still like to win the tanker competition for the U.S. Air Force. The big tax breaks Boeing gets in Washington state might be a harder sell before the world body.
The WTO judgment was at best a moral victory in very turbulent times. Airbus will likely appeal it. The company spun it to claim that 70 percent of the “wild accusations” by the United States had been rejected.
Boeing says America prevailed in 52 of the 71 direct subsidies that were challenged, calling the ruling a “landmark decision and sweeping legal victory.” You get the idea.
This is more than a battle between two global giants. Airbus’ rise, thanks to massive state support, coincided with the failing health of a U.S. commercial-aviation industry that once bestrode the world with three major companies, all operating without such government subsidies.
While Airbus and its sugar daddies alone didn’t kill off the airliner business of Lockheed and McDonnell Douglas (or cause Boeing to be subsumed in the McDonnell culture after the merger), they certainly played a big role.
With the demise of those companies went tens of thousands of American jobs, as well as aerospace clusters in several cities. Boeing, meanwhile, lost business around the world because of these unfair practices.
‘Free trade’ anger
Americans are in a surly mood about trade in general. Especially after China’s entry into the WTO, more Americans see themselves as net losers from “free trade.”
Dozens of industries have been decimated and nearly 26 million are unemployed or underemployed. The promises that continued liberalization of trade will mean more jobs have failed to materialize. And that’s not the only backdrop for the subsidy dispute.
A new economic model threatens to make the Boeing-Airbus spat a footnote to our future. This is China’s combination of an authoritarian state with a state-directed form of capitalism.
It’s far different from European subsidies for Airbus, or American subsidies for agriculture, for that matter. It’s also different from Japan’s “dumping” of cheap products here in the 1980s.
Almost all companies on the Shanghai Stock Exchange are state-owned or controlled. The state-controlled banking system funneled huge amounts of money into these companies and others during the recession.
Beijing has staked out entire industries that receive major state support. Among these are such strategic sectors as renewable energy. The goal is to be a world player in each.
It won’t be long before a Chinese commercial-aircraft maker emerges to take on Boeing and Airbus, and its world reach won’t be financed by the private capital markets.
Chinese state capitalism has insulated China from the worst of the recession and has made it the nation expected to lead the world out of the downturn. China has serious challenges, too, and it’s not clear the tensions inherent in the Chinese system make it sustainable.
But this is the competitive threat that the old Soviet system never presented to American capitalism — one made worse by the self-inflicted wounds at home, on Wall Street and elsewhere.
It’s ultimately a challenge to the trading system America established after World War II, crowned by the WTO.
China follows the WTO after its fashion, while also playing by its own rules. It won’t be pushed. If Western nations really attempted to force Beijing to provide a free-and-fair trading environment, the WTO would collapse.
If Airbus and its patrons can evade the trade group’s ruling, it hardly sets a good example. Yet it may be a preview of the WTO’s fundamental impotence and irrelevance. In the minds of more Americans, the WTO will be one more institution that has lost its legitimacy.
That’s not good for either airplane company. It’s downright scary for the world economy.
You may reach Jon Talton at email@example.com