The Sky over the Atlantic is clearing up

Recent advances in the decade-long conflict between Airbus and Boeing indicate a shift in transatlantic relations


       Aside from minor disputes, the European Union and the United States consider each other as close allies. This partnership is driven, in particular, by a large overlap of geopolitical interests as well as a common understanding of the desired economic framework around the globe. Policy makers on both sides of the Atlantic are hopeful that, with President Biden in power, the relationship will soon be marked by increased cooperation compared to the preceding four years.

       The recently announced suspension of tariffs related to the Boeing-Airbus case, a dispute ongoing since the George W. Bush administration, can be seen as a first step towards reconciliation and the resolution of a long-standing conflict between the two unions. In the following, I would like to give you a more detailed insight into this 16-year-old conflict and the interests of both the United States and the European Union, respectively.
  
       The conflict between the European Union and the United States goes back to 2006, when the Bush administration filed a case at the World Trade Organization (WTO) against Airbus, claiming that the aerospace-manufacturer had received illegal subsidies from the British, French, German and Spanish governments respectively, resulting in an unfair competitive advantage. The European countries, which also own considerable shares in Airbus, filed a countersuit less than 24 hours later, claiming the United States had illegally subsidized Boeing in various research and development projects. The European Union and the United States have each filed additional cases related to newer generations of airplanes in subsequent years.
      
       This escalation was a consequence of both parties’ attempts at global leadership in the commercial airplane manufacturing industry, as Airbus and Boeing combined sell 91 % of all commercial airplanes worldwide. Besides the economic benefits of emerging victorious in such a duopoly, airplane manufacturing remains a symbol of technological progress, which only very few countries are able to achieve. An alternative explanation for the small number of airplane-manufacturing countries and firms is that this business sector is related with very high risk and comparatively low profit margins, which also explains the various forms of direct and indirect financial assistance provided by the respective governments on each side of the Atlantic. Whether it was a coincidence that the United States filed its case against Airbus in 2006, after Airbus sales had eclipsed Boeing’s for five consecutive years, is subject to the individual judgment of each person reading this analysis.
       
       In order to gain a better understand the conflict between the two airplane manufacturers (and by extension, the respective governments), one should be aware of the relevant WTO articles. The United States and Boeing claimed that Britain, France, Germany and Spain had violated Article III.4 of the General Agreement on Tariffs and Trade (GATT) of illegal state aid by providing Airbus with loans at more favorable conditions than Airbus would have received on the market. The European Union countered the American claim by accusing the United States government of violating the same article (III.4) by awarding defense contracts, research projects as well as local tax breaks allowing Boeing to achieve a higher profit margin.
       
       The main point of contention in both cases is that these subsidies can be considered export-boosting subsidies, which harm other countries considerably, as this can drive competing firms in non-subsidized countries out of the market. This, ultimately, would culminate in one firm (or firms from one country) monopolizing a certain industry or market, leading to much less favorable outcomes than a competitive environment. The WTO found that both Airbus and Boeing had received illegal subsidies and required the respective companies to repay these.
       
       After a long-lasting legal conflict – including multiple judgments and appeals with both sides claiming victory –spanning 13 years, the WTO found that both sides had violated WTO laws governing state support of large civilian aircraft, which allowed both the United States and the EU to raise tariffs on each other. While the EU was allowed to raise tariffs on up to $4 billion of US goods, the United States were allowed to impose tariffs on up to $7.5 billion worth of EU goods, which is the largest sum awarded by the WTO to date.
       
       The decision of both the European Union and the United States to suspend the tariffs they had imposed on each other can be shown as an act of good faith by both sides and one that is in contrast to the negotiation strategies employed in the years prior. This can also be seen as a reflection of a change in strategy by US officials, induced by the change in administration from Trump to Biden, as the previous President of the United States preferred signs of power and determination such as tariffs targeted at countries he felt were taking advantage of the USA. With both Airbus and Boeing posed to dominate the civilian airplane manufacturing industry for the foreseeable future, there remains room for conflict between both parties. However, the recent developments of both sides preferring cooperation over confrontation could be a signal of a change in transatlantic relationships under the Biden Administration.