Another Boeing V Airbus

Source:
http://www.dailytrojan.com/news/2005...s.Bad.End.Of.=
The.Deal-904919.shtml

Boeing gets bad end of the deal
By Sean Sachdev
Published: Tuesday, March 29, 2005

The United States needs to take a more aggressive role in defending its
economic interests.

One fine example of this is our administration's relaxed and failed
efforts in protecting Boeing's (and ultimately American) financial
security in the worldwide market.

At one point, Boeing used to be the major manufacturer of large
commercial jetliners, being virtually the universal supplier of planes
worldwide.

In the late 1960s, in order to enter into the lucrative aircraft
market, several European governments (including France, Germany and
Britain) joined in cooperation to start up a rival company, Airbus, to
destroy Boeing's dominance in the jetliner market.

Unlike the self-supporting Boeing, however, they lavishly provided
subsidies and risk-free loans to help the fledgling company become the
giant that it is presently.

Slowly foreseeing a future problem, in 1992 (when Boeing held about 73
percent of the market) the United States worked out a bilateral
agreement with the European Union to allow - but eventually phase out -
the unfair subsidies being given to Airbus. Now more than 14 years
later, despite the fact that Airbus is selling more planes than Boeing,
European governments are still providing risk-free loans/subsidies to
the manufacturer.

Just recently, they provided more than $3.7 billion to build the A380
("super jumbo" jet), in order to compete with Boeing's time-tested 747
jumbo jet and now, after Boeing's announcement of the new, mid-size
7E7, Airbus wants an additional billion dollars to build the A350 as a
competitor.

This is hardly fair. If the Boeing 7E7 fails to sell, then Boeing gets
nothing. But if the Airbus plane fails to sell, it gets to keep more
than $3 billion in risk-free loans provided by European governments.

In October, after increasing pressure by Sen. John Kerry's presidential
campaign, the Bush administration finally filed a complaint with the
World Trade Organization and terminated its 1992 bilateral agreement
with the European Union. Now after several months of attempted
"negotiations" the matter still hasn't reached a resolve.

This situation is absolutely pitiful. The Bush government needs to take
a far more aggressive role to secure fair market competition for
Boeing.

Many experts believe that American membership in the WTO is one of the
main reasons why the federal trade deficit continues to climb.

Ignoring other possible WTO negatives, the United States should at
least use its clout in the WTO to ensure fair market competition for
jetliner sales.

This is important for more than one reason.

For one, it would enable at least fair competition in a market that
some believe will be worth at least $2 trillion over the next few
years, affording a myriad of benefits to the side that takes the
biggest slice of the pie.

Also, solving this issue is important because it will set a precedent
for other governments unfairly subsidizing other industries to defeat
American competition (especially those that are members of the WTO).

After the American complaint, in a desperate attempt to preserve the
subsidies for Airbus, the European Union immediately counter-filed a
baseless complaint claiming that perhaps Boeing was getting subsidized
by the U.S. government.

While the act was completely crude and almost even childish, at least
it showed the EU's support for its industry.

I wonder what will it take to galvanize our government to rightfully
protect its own self-supported industry?

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Comments:
The words like "completely crude and almost even childish" used by the
author (Sean Sachdev) is unaccetable. Please read the following article
and you will find the answers to those questions.
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Source:http://www.truthabouttrade.org/article.asp?id=3D3610

Boeing V Airbus

History suggests an unsatisfactory ending to the current row over
aircraft subsidies between America and Europe. The last similar dispute
to go to the World Trade Organisation (WTO) was in the 1990s, when
Canada and Brazil traded accusations over subsidies for Bombardier and
Embraer, makers of regional jets (seating up to 100 passengers) in the
respective countries. The WTO found both parties guilty. Neither
country applied sanctions. Subsidies continued to flow.

The dispute over subsidies to Airbus and Boeing would be the biggest
yet to go to the WTO-which now seems likely after the breakdown last
weekend of talks between America and the European Union (EU)-and any
sanctions resulting from it could have nasty knock-on effects for other
trade negotiations. Nor is the dispute itself as straightforward as the
earlier one.

America wants an end to Europe's soft government loans, known as
"repayable launch aid". These allow Airbus to develop new models
safe in the knowledge that much of the "borrowed" development money
will be written off should the new aircraft not sell well. In practice,
Airbuses now sell like hot cakes and governments collect royalties on
the aid even after the principal and interest are paid off. Yet should,
say, the new Airbus A380 not achieve 500 sales, Airbus's parent company
EADS (and its one-fifth partner BAE Systems) will not have to repay any
of the $3.7 billion of soft loans advanced to get it off the ground. On
the other hand, Boeing, says Airbus, has long received subsidies
indirectly via development contracts from NASA, America's space agency,
and from the Department of Defence.

In 1992, Europe and America agreed that Airbus's launch aid would be
limited to one-third of development costs, while indirect aid to Boeing
would be capped at 4% of its total revenues. But last year America tore
up this bilateral deal and demanded an end to Airbus's launch aid,
declaring that the 1992 agreement had required it to be phased out over
time.

One reason for this new tough stance was that Airbus had started to
outsell Boeing and, worse, seemed to be successfully launching the A380
to end the age-old long-haul monopoly of Boeing's 747. Airbus has
outspent Boeing both on research and development and on capital
investment, making its production perhaps one-quarter more efficient
than its rival's.

Another reason, suspect some Europeans, is that America knew it was
already breaking the bilateral deal. Direct financial support had been
provided for the production of bits of Boeing's new 787 jet by the
states of Washington and Kansas.

Under the WTO's Subsidies and Countervailing Measures agreement,
subsidies to a specific company or specific industry from a government
or other public bodies are not allowed. Airbus's launch aid is surely
in breach of this, and America would have a good case before the WTO.

Yet the EU too could probably bring a strong case to the WTO. However,
this would probably not be just against Boeing, but also against the
American firm's Japanese business partners. The new Boeing 787 is being
built with the heavy-industry divisions of Mitsubishi, Kawasaki and
Fuji, in a consortium known as the Japanese Aircraft Development
Corporation (JADC). According to an assessment by David Pritchard and
Alan MacPherson of the State University of New York, Buffalo, JADC is
being offered at least $1.5 billion in soft loans repayable only if the
aircraft is a commercial success, like the launch aid enjoyed by
Airbus.

In January, with much fanfare, America and the EU agreed to hold talks
for three months (up to April 11th) rather than go to the WTO with the
formal complaints that each has prepared. The EU trade commissioner
seemed optimistic, and even George Bush said recently that the dispute
was manageable. The idea was to go for a limited deal, addressing
further issues, such as Japanese aid, later. But the talks have now
ended acrimoniously, after the EU-probably sensing that its beloved
launch aid is doomed, sooner or later-suddenly demanded that the
Japanese aid also be included in the negotiations.

According to industry sources, America is hoping to prolong the process
to delay launch aid for Airbus's A350 plane, a spoiler being rushed out
to counter Boeing's new 787. But Airbus's boss, No=EBl Forgeard, says
the plane will go ahead without launch aid if need be. The chances are
that America, its delaying tactic having achieved nothing, will file a
WTO suit next month-with the EU retaliating soon after.

Curiously, this classic national champions' subsidy row has erupted
just as the civil aircraft business is becoming truly global. Not only
has Boeing outsourced development and production on its latest plane to
Japan, it has also changed its business model, selling its large
Wichita factory for making fuselages to a private-equity firm. This
firm is likely to tout for business from Airbus as well as Boeing.
Boeing's defence arm previously sold a huge machine shop in St Louis to
a British firm, GKN. The new owners hope to win work from several
aerospace firms. Indeed Airbus and Boeing already spend over $5 billion
a year each in their rival's backyard, often using the same suppliers.

End...