WTO: Airbus Tanker Developed Using Banned Business Practices

The World Trade Organization report condemning European subsidies to Airbus contains a section detailing how the A330 widebody transport was developed using practices banned by current trade agreements. Airbus parent-company EADS has proposed the A330 as a candidate for the Air Force’s next-generation aerial refueling tanker. However, the WTO report finds that most of the $5.7 billion in aid Airbus received from European governments in developing the plane would be deemed illegal export assistance under the WTO agreement on subsidies and countervailing measures.

The Department of Defense has tentatively decided to grant EADS an extension of time so that it can compete against Boeing for the $40 billion tanker contract. But the WTO report makes any such move problematic by branding the manner in which the A330 was developed as contrary to free-trade rules. The U.S. Trade Representative has argued in filings with WTO that the A330 never would have been developed without the use a low-cost or no-cost loans now deemed illegal. Such concessionary loans are not available to commercial companies like Boeing, and thus provide an unfair advantage to Airbus.

Airbus stated in a media release on Tuesday that the WTO had ruled its “reimbursable loan mechanism” was legal. That is only true when loans are provided at the same market rates and terms available to competitors. The trade body ruled that when such loans are provided at below-market rates, or when reimbursement is only required once a new plane becomes profitable, the practice is illegal under current trade agreements. Most of the loans used to develop the A330 fall into the latter categories, meaning that the Airbus tanker was developed using practices that would be prohibited today. The U.S. Trade Representative has stated that the current value of such improper “launch aid” to Airbus since it was founded approaches $200 billion, enabling the company to develop new planes faster than a commercial company could and price them more aggressively.

Using such tactics, Airbus has become the dominant supplier of airliners in the global market, claiming over 50% of market share since 2002. Today, Airbus planes continue to get billions of dollars in prohibited government subsidies — cash infusions that enable the company to price products such as its tanker candidate much more aggressively than a purely commercial enterprise could. But it remains to be seen whether Congress will permit the Pentagon to reward Airbus’ predatory business practices by allowing the company to participate in the pending tanker competition.