Exclusive: WTO rules Boeing's state subsidies illegal

A Boeing 737 MAX plane is seen during a media tour of the Boeing plant in Renton, Washington, U.S. 7 December 2015 Image copyright Reuters

In a landmark trade ruling, the World Trade Organization will this afternoon find Boeing has illegally benefitted from billions of dollars from the most anti-competitive type of subsidy.

These so-called "prohibited" subsidies are considered the most serious form of anti-competitive practice as they require an undertaking from the company in receipt of them to promise not to operate in other jurisdictions.

You can have the money if you promise you won't open plants elsewhere - in this case even in another US state.

This particular subsidy was offered by Washington State - home of Boeing's vast Everett and Renton plants - and covers the development of its wide bodied 777X aircraft.

Previous examples of this kind of ruling usually require immediate repayment - a sum that by some estimate could approach $9bn, a figure Boeing itself, however, hotly disputes.

Boeing has previously called for an Australian company, found to be in receipt of similar prohibited subsidies, to be forced to immediately repay them, but it's unlikely it will take such a hard line on itself.

Subsidy wars

This marks a victory for Airbus in a war without end.

Back in September the European aerospace giant, which employs 15,000 people in the UK, was on the receiving end when it was found that billions of euros in low interest loans amounted to illegal subsidies.

Boeing celebrated that moment as a comprehensive victory which would deal a mortal blow to Airbus and result in more US jobs.

The reality is that neither of these companies can exist without government subsidies.

The development costs of new aircraft are just too big, and the risks and rewards too great, for governments to stay out of it.

Boeing gets money from NASA and the US Department of Defence; Airbus from very, very cheap government loans.

For years this was the case and an uneasy truce reigned over the world aerospace market throughout the 1990s and beyond.

Then, in 2004, all hell broke loose and the lawyers on both sides have been at each others throats for 12 years - a nice little earner for them.

Bury the hatchet?

Could the end of this legal gravy plane be in sight?

Perhaps.

It's not just the US and Europe who are at it.

Canada's government subsidises Bombardier, and then there is the biggest threat to the Airbus and Boeing duopoly.

It is called Comac, the state-funded Chinese plane maker with the world commercial aviation market its number one target.

Its recent wide bodied aircraft combine features of both the Boeing 777 and Airbus A350 and caught many eyes at a recent airshow in China.

Perhaps this potential common enemy will one day prompt Boeing and Airbus to bury the hatchet.

The world's longest running and costliest trade dispute does shed some interesting light on the workings of the World Trade Organization.

This is a body the UK may get to know a bit better in the coming months and years if the UK leaves the EU without striking a replacement trade deal.

The big lesson is this: disputes take years, are rarely conclusively settled, and do not take the heat out of international trade disputes.

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