‘Everyone Is Guilty’ of Aid Means U.S. WTO Wins May Be Harder

By Mark Drajem

Sept. 7 (Bloomberg) -- The partial U.S. success in a dispute over European subsidies to Airbus SAS may be difficult to replicate after the Bush and Obama administrations pumped billions of dollars into banks and automakers during the financial crisis.

A World Trade Organization panel issued a preliminary ruling Sept. 4 that some European government aid to Airbus was illegal, according to people familiar with the confidential findings. The trade arbiter acted on a U.S. complaint saying Airbus received $15 billion in unfair assistance that helped it supplant Chicago-based Boeing Co. as the world’s biggest aircraft maker.

Former President George W. Bush put fighting such subsidies at the top of his trade agenda, and the Airbus filing in 2004 was the biggest case he brought. Similar complaints now would be undercut by the bailouts that Bush and President Barack Obama doled out to private companies, said Claude Barfield, a resident scholar at the American Enterprise Institute, a public-policy research group in Washington.

“It’s going to be hard to carry out the same agenda,” Barfield said in an interview. “The subsidy rules are still there, but the U.S. is going to be reluctant to bring any new cases because everyone is guilty.”

Instead of leading more fights against subsidies by the European Union, China and Australia, the U.S. may have to fend off trade cases brought by developing nations such as Argentina, India and Brazil, which haven’t resorted to such large-scale bailouts, according to Gary Hufbauer, a fellow at the Peterson Institute for International Economics.

Global ‘Glass House’

“The subsidies being done now make the amounts in the Boeing-Airbus dispute pale in comparison,” Hufbauer told a forum on Capitol Hill on July 27. The U.S. has given hundreds of billions in aid to companies from General Motors Co. to American International Group Inc.

The U.S. isn’t alone, as European and Asian nations such as Germany, China and Japan provided government money to automakers, shipbuilders, banks and other companies during the worst economic slowdown since the Great Depression.

“We live in a glass house of global subsidies, and new additions to this edifice are being added every day,” James Bacchus, a lawyer in Washington who heads the trade practice at Greenberg Traurig LLP, said in an interview. “Don’t hold your breath” for the U.S. to continue Bush’s push against aid, he said.

Challenges from developing nations also may come as the U.S. and other nations consider giving free permits for greenhouse gas pollution to domestic makers of steel, aluminum and other energy-intensive manufacturers, Bacchus said.

EU’s Boeing Complaint

The U.S. and EU are already losing some cases. The WTO said on Aug. 31 that Brazil can impose $294.7 million in sanctions against U.S. goods to compensate for subsidies paid to American cotton farmers.

The WTO said in its preliminary ruling on Toulouse, France- based Airbus that some of the aid provided by the U.K., France, Germany and Spain amounted to illegal subsidies that damaged Boeing, according to the people, who asked not to be identified because the document wasn’t public. The ruling can be appealed.

The EU countered the U.S. complaint with its own filing, also in 2004, saying Boeing got $23 billion in aid through state tax breaks, U.S. military research and export guarantees. A ruling in that case may not come until next year.

Reducing tariffs was the original mandate of the WTO. In talks leading to its formation in 1995, the U.S. succeeded in adding rules limiting government payments that could give companies an advantage over overseas competitors.

After filing the complaint over Airbus, the U.S. pursued WTO petitions against tax breaks and payments to Chinese manufacturers and cash grants and research funding to Chinese apparel and technology exporters.

China’s Watching

The ability of the U.S. and the EU to respond to subsidies by developing nations such as China may depend on how the countries in the Boeing-Airbus dispute react to eventual final rulings by the WTO, according to former U.S. Trade Representative Susan Schwab.

“What will China think as it endeavors to build an aircraft industry of its own over the next 20 years?” Schwab, a professor at the University of Maryland in College Park, said in an interview on Sept. 1.

In 2007, Schwab proposed that the WTO’s list of illegal subsidies be expanded to include forgiveness of government loans, provision of equity capital and loans given to “uncreditworthy” companies.

The U.S. bailouts have included all the measures the proposal would have banned.

“We have gone on a subsidy binge,” John Magnus, a lawyer who specializes in trade subsidies at Miller & Chevalier in Washington, said in an interview. “We would be ridiculed” if the U.S. began a new drive for limits on subsidies, he said.

U.S. Distinction

The U.S. makes a distinction between short-term emergency assistance and the subsidies, known as launch aid, that Airbus has been receiving for 30 years, according to the U.S. Trade Representative’s office.

“Because launch aid is a long-term problem, it will continue to be relevant well after the current financial crisis is over, and it therefore requires a long-term solution,” Carol Guthrie, a spokeswoman for the trade office, said in an e-mailed response to questions. The U.S. will continue to target “unfair subsidies,” she said.

“It’s apples and oranges,” Robert Novick, a partner at WilmerHale in Washington who represents Boeing, said in an e- mail Aug. 13. “This case is about European governments providing Airbus, a very healthy company, risk-free financing to develop airplanes to compete with Boeing and American workers.”

Call for Negotiations

Airbus says the recent spate of U.S. subsidies shows that the dispute between the aircraft makers should be solved through negotiation rather than litigation.

“The Airbus-Boeing trade case is sort of moot or irrelevant in the face of these massive government supports into private industry,” Allan McArtor, chairman of Herndon, Virginia-based Airbus North America, said in an interview before last week’s WTO ruling. “There’s definitely a new world order.”

To contact the reporter on this story: Mark Drajem at mdrajem@abloomberg.net