Monday, May 14, 2012

Airbus Boeing story - Is the flight going to land at all?

One of the longest and most complex WTO disputes has been between the US and EU concerning alleged subsidies to Airbus and Boeing aircraft manufacturers. I have blogged about it here, here and here. Some analysts have argued that the settlement of the long standing dispute can be only achieved "politically" and not "judicially". 
Boeing Versus Airbus: The Inside Story of the Greatest International Competition in Business

A book titled "Boeing versus Airbus" on the dispute captures the genesis and journey of the two largest aircraft manufacturers, their practices and challenges.
"Long one of America’s most successful and admired corporations—and its biggest exporter—Boeing struggled to maintain 50 percent of the market share for commercial aircraft after being overtaken by the European upstart Airbus in the late 1990s. But Airbus did not remain on top for long. By 2006, the company suffered from mismanagement and had adopted the kind of complacent, risk-averse culture that had once characterized its competitor. 

Incorporating interviews he conducted throughout the industry—with everyone from company leaders, past and present, and Wall Street analysts to design engineers and factory workers—John Newhouse takes us inside these two firms to help us understand their struggle for supremacy in a business based as much on instinct as on economics. He examines the critical issues that Boeing has faced in recent years, including its difficult merger with McDonnell Douglas, its controversial move from Seattle to Chicago, and a series of corporate scandals that made front-page news. And he analyzes the troubles that have beset a once ascendant Airbus, notably an institutional structure aimed at satisfying the narrowly focused interests of its European stakeholders. Newhouse also explores the problems that now face Boeing and Airbus alike: potential competition from China and Japan, the challenge of serving burgeoning Asian markets, and the need to undo years of mismanagement. "
More recently, Simon Lester has beautifully analysed the international legal dimensions of the dispute in an ASIL insight titled "The Airbus—Boeing Subsidy Dispute: With Both Parties in Violation, Is There an End in Sight?". The Appellate Body in the US- Aircraft case found the US in violation of the SCM Agreement since the US Government was providing subsidies to Boeing inconsistent with its obligations under the Agreement. Will the US comply with the AB decision and withdraw all subsidies or will it await the EC - Aircraft case? He summaries the dilemma of the US in terms of compliance here:
"The United States now faces a difficult task in implementation.  The subsidies at issue come from a wide range of government entities at the federal, state, and local levels.  An orderly, coordinated withdrawal of all the subsidies will be difficult to achieve.  Instead, the United States may focus on particular federal subsidies over which the Executive Branch has the most control.  It may hope that by changing these subsidies in some way and to some degree, it can achieve compliance even if particular subsidies remain.  Complicating the matter is that some federal subsidies have already been subject to WTO dispute recommendations (the FSC/ETI subsidies), and some new state subsidies (in South Carolina) have recently been instituted. In all likelihood, this dispute will eventually see an EU challenge to U.S. compliance attempts, as currently underway in EC—Aircraft. Of course, there is always the possibility that the parties will settle. However, with the way the United States continues to press forward in EC—Aircraft, this seems unlikely.
The Airbus and Boeing disputes bring to the fore many questions:

1. The enormous time the disputes have taken call into question the efficacy of the DSM. Delay in resolution of disputes is often experienced in national judicial systems. The very basis of arule-based, effective multilateral trading system is a well oiled judicial system to address trade disputes promptly. The delay in resolution of these disputes does not augur well for the system.

2. Will compliance be a victim in these two disputes? Just as the US mulls over its options in the Cloves Cigarettes case against Indonesia, will non-compliance (and consequent facing of retaliation) be an option? While it may be economically worthwhile for the US to do so against Indonesia, would it be suicidal to do it here and face crippling trade retaliation from its largest trading partner the EU? Would it lead to a trade war between the two largest trading partners?

3. Are complex, trade disputes best solved "politically"? After 7 years of long winding legalese and arguments, the two members have not been able to resolve the dispute. Are the stakes so high that the dispute needs to be resolved at the political level by addressing trade offs and negotiating a settlement? In that sense, can non-compliance continue by trading partners willing to "politically" resolve it? What impact does this have on the sanctity of a rule based trading system which seeks to discipline countries for non-compliance and violations of WTO obligations?

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