EU Says It Would Slice Airbus Support in Return for Boeing Cut

http://quote.bloomberg.com/apps/news?pid=10000085&sid=aAzolsZrDMss&refer=europe

Aug. 14 (Bloomberg) -- The European Union said it would be ready to cut support for Airbus SAS, the world's biggest planemaker, in return for less U.S. aid to Boeing Co. after President George W. Bush threatened to file a trade complaint.

``The EU has as strong an interest in disciplining government support to Boeing as the U.S. has in disciplining support to Airbus,'' said Ewa Hedlund, a spokeswoman at the European Commission, the EU's executive arm in Brussels.

Bush said yesterday European subsidies to Airbus are ``unfair'' and the U.S. may file a World Trade Organization complaint to force a cut. Both sides have discussed aircraft aid in recent weeks and more talks are planned.

Read more by clicking on the link.

I think the difference is that Boeing gets *local* support from communities to locate there and create jobs that benefit the community overall. It's not necessarily a national a Federal thing, whereas Airbus has had funds pumped into them from various nations where Airbus is not even located more or less for prestige and so that Airbus can dominate the marketplace.

Boeinghas to give back to those communities in terms of jobs, charitable donations, etc whereas Airbus can skate even if they default on one of their "loans."

Boeing, based in Chicago, gets U.S. government help in the form of indirect subsidies through research grants from defense projects and the National Aeronautics and Space Administration.

The difference is, the US government gets something for the research that is done: New Technology. All the EU gets for its various member-state loans is "national" pride.

Phil Singer, a spokesman for Democratic presidential candidate John Kerry, 60, a four-term senator from Massachusetts, said in an e-mailed statement that Bush's call for an end to Airbus subsidies is ``too little, too late.''

And what has Mr. Kerry done about all this? I'll tell you what: Nothing. Nor was it even on his agenda before it was brought up by Stonecipher and Bush...

The difference is, the US government gets something for the research that is done: New Technology. All the EU gets for its various member-state loans is "national" pride.

and interest. Lots of it actually. It's nice to have too, as it keeps my taxes down.

We've made quite a bit of money on those Airbus loans. In fact I wish the UK Government would loan even more money to Airbus as it's a good investment that is making money for our Treasury.

Any more election-frenzy bullshit that anyone wants to spin then?

[Edited 2004-08-14 23:21:49]

I think the difference is that Boeing gets *local* support from communities to locate there and create jobs that benefit the community overall. It's not necessarily a national a Federal thing, whereas Airbus has had funds pumped into them from various nations where Airbus is not even located more or less for prestige and so that Airbus can dominate the marketplace.

Boeinghas to give back to those communities in terms of jobs, charitable donations, etc whereas Airbus can skate even if they default on one of their "loans."


What nonsense. The local support - usually state money - is an out and out bribe. It happens in the automotive industry, the high tech industry, the aerospace industry, the movie industry, pro sports, the airline industry and many others. A company says it wants to build a plant, and basically puts it up for bids. The state making the most concessions in the form of tax holidays or grants gets the plant. The company was going to build that very plant somewhere - so the grants are a net cash gain or saving that is rarely repaid. It is a subsidy, and since every state does it, its hard to see how anyone really comes out ahead in the long run except the companiea which laugh up their sleeves at the suckers.

Americansl build stadiums for pro sports with tax payer dollars, and subsidize auto assembly plants, semi-conductor plants, and so on. It's probably good theory if you are the only jurisdiction doing it, but when everybody is doing it, becomes fiscal lunacy. Maybe Europe isn't any better, but they aren't as hypocritical about it.

What nonsense. The local support - usually state money - is an out and out bribe

Which in our system of government, the Feds have absolutely no ability to control. I don't like them, either. In my opinion, they violate the 14th Amendment. But the fact is, "special consideration" for certain companies has been judged (until this point) to be Constitutional by the courts, and the Feds don't have a Constitutional power to control the taxes of a local government.

The company was going to build that very plant somewhere - so the grants are a net cash gain or saving that is rarely repaid

Actually, there are some states that do come out winners: States with higher income tax rates that otherwise would never have seen that factory. They cut the slack for the company and its profits, but its already high income and/or sales taxes make up for much of what was given in tax breaks. A factory that would have been located in, say, South Carolina, with its low taxes in general, ends up in Ohio or Illinois instead.

Americansl build stadiums for pro sports with tax payer dollars, and subsidize auto assembly plants, semi-conductor plants, and so on. It's probably good theory if you are the only jurisdiction doing it, but when everybody is doing it, becomes fiscal lunacy.

There's a difference with the stadiums: Few sports franchises today could afford to build their own stadium (besides the Yankees, the Redskins, and a few other major-market players). And much of the time those stadiums are paid for in rents, parking fees and concession sales.

As for subsidizing the assembly plants, again I say I don't think it's right either, but so far no one has successfully challenged it.

and interest. Lots of it actually. It's nice to have too, as it keeps my taxes down.

How much interest can you earn from a defaulted loan? Airbus can default on the loans without penalty (except its S&P or Moody's rating). That's the problem: Basically, for Airbus it makes the risk almost zero and the potential profits astronomical. Boeing has access to no such capital. For Airbus, if they fail, it's free money. For Boeing, if they fail, the whole company goes down the tubes.

How much interest can you earn from a defaulted loan? Airbus can default on the loans without penalty (except its S&P or Moody's rating). That's the problem: Basically, for Airbus it makes the risk almost zero and the potential profits astronomical. Boeing has access to no such capital. For Airbus, if they fail, it's free money. For Boeing, if they fail, the whole company goes down the tubes.

Supply evidence that these loans are without default penalty.

Can you?

Can anyone?

And how can it be free money for Airbus? If they go bust THEY LOSE EVERYTHING. How is that free? A loan is still repayable if the company is in operation.

Let's examine Boeing's 'non-access' shall we. The recent X-Plane contract. Boeing failed with its design. Did they have to repay the DoD the billions they got in the development contract? By your rules Boeing should have repaid every cent as they failed.

Boeing make the best jets in the world. Politicians are using them as a sleazy vote-grabber by spinning and distorting the truth about the aircraft market. Shills then come on here ad nauseum and repeat the party rhetoric. It's just plain wrong.

[Edited 2004-08-14 23:50:10]

Which in our system of government, the Feds have absolutely no ability to control. I don't like them, either. In my opinion, they violate the 14th Amendment. But the fact is, "special consideration" for certain companies has been judged (until this point) to be Constitutional by the courts, and the Feds don't have a Constitutional power to control the taxes of a local government.


This is an argument we in Canada hear from you all the time. You Americans hide behind it like a five year old behind his mother's skirt.You sign a trade agreement, then effectively renege on it by letting this state or that city do an end run. You also don't live up to your trade obligations if it doesn't suit you. You run to the WTO to protect one special interest (Boeing) but ignore WTO rulings when it suits the cause of other special interests, even over the best interests of US consumers (softwood lumber, beef). Pardon the rest of the world for having no sympathy for the way the US does business. The only level playing field it wants is the one tilted in its favor.

Actually, there are some states that do come out winners: States with higher income tax rates that otherwise would never have seen that factory. They cut the slack for the company and its profits, but its already high income and/or sales taxes make up for much of what was given in tax breaks. A factory that would have been located in, say, South Carolina, with its low taxes in general, ends up in Ohio or Illinois instead.


Do they really come out ahead? Maybe on that one deal they do, but how about the companies that might have located in their area but are lured away by another state's subsidies. Each state has only so much subsidy money available.

There's a difference with the stadiums: Few sports franchises today could afford to build their own stadium (besides the Yankees, the Redskins, and a few other major-market players). And much of the time those stadiums are paid for in rents, parking fees and concession sales.


This has been debunked by many studies. If this money wasn't spent, it would be spent somewhere else in the same area. If people don't go to their football, they will go to the movies, or a theme park, or eat out more often or buy a bigger car, whatever. The money gets spent. And the money not spent on a stadium for pro sports teams can be spent in the community on fixing up schools or buying new buses or whatever. In the case of arenas, the situation is even worse because pro sports teams are clearly "negotiating" with local governments, threatening to move their teams. Just look at the Sacramento situation. Basketball fans in Sacramento have supported their team as well as any in the league but now the Malouf Brothers who own the NBA team have put a gun to the heads of local government, implying that if the city doesn't build them a new taxpayer-funded arena, they could move the team. This is happened across pro sports. I'm glad to say that no government in Canada will go to the lengths many US municipalities will go to subsidize pro sports. Maybe that's why we can afford (barely) universal health care.








[Edited 2004-08-14 23:58:40]

[Edited 2004-08-15 00:06:05]

We should all take this story with a rather large pinch of salt. Sounds more like the desperate ramblings of a desperate man desperately trying to get himself re-elected with some all-American, aren't we hard done to bullsh!t.

oke don't bash me for my replay pleaze, i don't try to get an A. vs B


i think any government may suport a company based in its country although not by giving money, but like buying planes from that manufactor, or advertise for the company. and if they give money(wich i don't suport) it has to be fair at least, so that USA and Airbus make deals that they both give the same or so. or els this will really turn out in a ''no-competition'' in the future. but i still think a company has to make it on theire own, without financial help. If any company would get money before they will get bankrupt we still would see TWA, Pan Am, Mcdonnal douglas, Sabena, swiss... its just life, some have to leave for making room for others.....


greetings maurice

I've posted a long and involved explanation of why no one side has no reason to come the 'holier than thou' position before now. But still the blinkered shills come back here and wail about these so-called subsidies.

It's time they realised that all politicians are sleazebags no matter what their colour, and there are three golden rules.

1. Politicians lie
2. Politicians twist facts to suit themselves
3. If you think a politician is being honest, see rule one.

Kim777fan, Elwood64151,

You've been swallowing too much of the crap they've been stuffing down your throat over there, cause it's clear from your posts above you have no idea how it works over here. All the countries get is prestige and national pride?!!

The very reason the loans have attractive conditions is because of the jobs they create. The more money you pump in, the greater the percentage of the project you obtain for your country. Take Britain for example, if I remember correctly, for a loan of 800m, the figures were 22,000 new jobs and 64,000 existing jobs secured (Airbus and suppliers) - have you any idea what that means in places where the Airbus factories are located?! For years the government has spent billions keeping companies afloat, 800m is peanuts for what they get in return! Same for all the others!

Get yourself out some books on Europe and do some reading, don't let your opinions on aviation fall victim to politics.

Countries on both sides of the pond drop a bucket-load of dough to their respective aircraft manufacturer for reasons of employment, tax revenue, economy etc, all reasons for their countries to succeed and for politicians to succeed as well. Be it local, provincial/state aides, it still is government subsidies and it is not like one is doing it and the other one is not. As for that smart guy who said that all the Europeans get is national pride should be reminded of which manufacturer came up with new technology (and better/more innovative products I might add) such as FBW, and which airline ended up adopting it (oh yeah, now the Dreamliner is getting more composite materials too!). So, yet again, when it comes to an american company and/or product, the rest of the world is dead wrong. Look outside the box, you are missing out on a lot!

Get yourself out some books on Europe and do some reading, don't let your opinions on aviation fall victim to politics.

Having read several books entirely on the foundation of the Airbus consortium, I can tell you the irony of the current situation is amazing. The goal of Airbus was not to dominate the aerospace industry, but rather to keep high-tech aeronautic jobs afloat and provide European's a strategic alternative to the U.S' dominance in commercial aviation.

Now, 30 years later, Airbus is pushing U.S. aerospace jobs out of business just like the U.S. was doing in the 50s, 60s, and 70s. Airbus' goal was to make the industry fair, but now, they are using old, out-of-date trade rules to maintain an advantage over Boeing. It's outrageous, both companies need to make some serious comprimeses because if nothing is done, another monopoly or trade war will arise.

both companies need to make some serious comprimeses because if nothing is done, another monopoly or trade war will arise.

Now this explains why I have you on my respected users list.....

Okay, I will admit that I haven't read every word of every post on this thread. However, there was something mentioned that has really attracted my attention. That is the discounts/subsidies/etc that cities and states allow for big business to come to town. Living in Austin, Texas (Silicon Hills) I see two sides to the story.

1) In 1999, it seemed great for Austin to lure and welcome high-tech (read: computer and software) companies to town. Literally, over 100+ people were moving into town DAILY! Excellent revenue and sales tax growth, schools (if it weren't for Robin Hood---those of you from out of state wouldn't understand), fire departments, city services were printing greenbacks from the property tax and sales tax revenues. Lovely, truly. FAST FORWARD to 2004. Still, over 100,000 unemployed (thanks to the dot.com and tech bust) and no jobs available for anyone without a Masters Degree in whatever. Worked well for a while, now...it jut sucks.

2) Texas State University (formerly Southwest Texas State) has reaped the benefits of luring an outlet mall to its area. Yes, tax breaks, concessions, etc. were made. However, because of the selection of San Marcos as the place to build, San Marcos has become the #2 destination in Texas, just behind the Alamo. Also, college students have the opportunity to work nearby at the outlet malls, and the tax revenues have been staggering...so staggering in fact that the city LOWERED the property tax rate because they were easily able to afford city services. Add to that a roster of over 2,000 jobs provided to the 27,000 collge students...BINGO.

There are two sides to the city/state subsidy story, and both very different in outcomes. That is a cost to do business (by the city and by the employer). It does not mean that XYZ company will be successful, it simply provides them a better reason to select one city over the next.

How does this apply to the never ending A vs. B story? Simple. Tell me that Toulouse, France did not offer Airbus ANY reason to select their city and the issue is dead. I would imagine that Toulouse, just like any city across the golbe, has touted Airbus by offering incentives and the like to build their plant there. This is a local matter, not a Federal matter.

Currently, the issues facing Airbus and Boeing regarding funding should not revolve around local (city/state/provincial) funding, but rather their funding sources. It should also be taken into account that the contract agreement reached by both parties in 1992 was cast in a different economic situation, and ultimately a different market demographic. Then, Airbus was a fledgling, a baby compared to the evil Boeing mega conglomerate.

I agree Boeing is a large company with diverse fields. EADS is also, now, a large company with diverse fields.

Your comments, and ladies and gentlemen, lets keep it respectful.

Mike S. In AUS

This is an argument we in Canada hear from you all the time. You Americans hide behind it like a five year old behind his mother's skirt.You sign a trade agreement, then effectively renege on it by letting this state or that city do an end run.

This is the way this country is. Don't like it? Don't sign trade agreements with us. Ever heard the phrase "fool me once, shame on you, fool me twice, shame on me"?

I'm not saying this is the way it should be in the modern age, but the United States is exactly that - the United STATES. Every state is, in many ways, its own little country. The federal government has limited control and always has. Over the years it's gained more and more control but the issue of exactly how much is the right amount has been argued ever since this country was founded. Think of the federal government in the US as it relates to states in the same vein as the United Nations is to the rest of the world. Or think about the EU, which is probably a closer analogy to what the US is.

Our history is different than your history. Most of Canada was unified under the British flag for a long time, and finally broke away en masse peacefully well after we did violently and piecemeal. After the American Revolution, each "state" (meaning "nation" at the time, and still now in most contexts) wanted to retain power over its own affairs, even down to maintaining their own borders and armies. A few of our founding fathers thought a central government would be necessary and compromises were reached; our Bill of Rights is one of those compromises (it exists to protect states and citizens against the power of the federal government), but many others still exist too. States still have borders, which are enforced differently (California, for example, has border checkpoints even when coming from another state!). They still maintain their own sets of laws, their own court systems, their own school curriculums, etc. The federal government ostensibly speaks for all member states but if a state's representatives in congress vote "no" on a particular treaty there is often no federal or state law preventing that state from exercising their own individual rights in breaking that treaty in various ways afterwards, unless the treaty is worded in a particular way to specifically overrule state law.

This is necessary because unlike most nations, we do not have a homogenized people. What works for Virginia is not going to work for New York. That was true 220 years ago and it's still true today. I would expect in 200 years somebody else will be writing pretty much this exact same post using the examples of, say, France and Spain.

Enough of the history lesson. I just get sick of people in other countries bitching about the way our system of government is set up. People call us arrogant at the same time as they spout on about their superiority simply because their system works differently than ours.

To get back on topic, if you ask me Bush should be doing the opposite of what he is doing. Threaten to start directly subsidizing Boeing rather than complaining about Airbus. If the EU wants to work that way, fine - let them subsidize whoever they want. Hey, it's their system. So let's modify our system to match. If Boeing needs a subsidy to compete with subsidized competitors, give it to them. See how Airbus and the countries that fund them like it. Fair's fair and if we want to be a good world citizen we'll adapt to the way the rest of the world works, right?

Spacecadet,
what a stupid excuse for the US not sticking to treaties they sign. Individual US states are not in the same position to its federal government the way EU countries are towards the EU or (please!) UN member countries towards the UN. The difference is, US states have no international sovereignty. Last time I checked, New Hampshire did not have a seat on the UN, did it? You should go back to 12th grade of high school and retake US government class. I remeber more from my high school exchange year than you know about your own country.
Also there's a certain hierarchy of laws, where international traties are supreme to local legislation.

The main difference between the state subsidies that Boeing gets for locating facilities in certain communities and the subsidies Airbus gets from European governments is that Airbus can also get the state subsidies for building facilities in the US while Boeing can't get the subsidies from the European governments.

L410turbolet-
wow, you really just do not undestand it, and that's sad. The complaint that Washington, Missouri, Kansas, or Texas cannot give tax breaks to Boeing, because it would in some way violate a WTO regulation is without merit, because Washington, Missouri, Kansas, and Texas have never signed a treaty with the WTO that would regulate their powers to give tax breaks. This is a domestic issue, pure and simple. What if every state in the union was to do away with corporate income taxes, relying only on a sales tax, or personal income tax? Would the EU or Canadians cry foul at what is surely an exercise of the rights of each state to regulate themselves? Would you be marching us before the WTO to scream that Columbus, Olympia, Topeka, or Charleston must put back these forms of taxation? What about the 10 or so states that currently do not have both a sales tax and income tax, are you already preparing your case to make them have both? When can we expect the lawsuit? Does that come with a free flight to the WTO in Europe? The World Court has chastized the Bush Admiinistration for being constittionally unable to intervene in the criminal proceedings of Mexican defendents sentenced in capital cases in Oklahoma, Texas, and Ohio. But, the Federal Constitution specifically precludes the President from being involved in such matters, matters that are specifically left to the states. I can gaurantee you that no one a the World Court placed a long distance phone call to speak with the governors in Columbus, Austin, or Oklahoma City regarding this matter, maybe they should have. We do not suppose that the British Primeminister can intervene in the criminal affairs of the French, why do you suppose the Federal President can intervene in the affairs of a soveriegn state?

The debate between Boeing and Airbus, and the subsidies they receive, is a defining example of how Europeans and Canadians have come to misinterpret the United States' form of government, which is a democratic republic. They have come to understand Washington DC as an all-powerful entity, never realizing the preclusions placed upon it by the Federal and various state/commonwealth constitutions (one could mention here how there are technically 44 states, 4 commonwealths, 1 assembly, and 1 kingdom - but that would just be really confusing to our friends north of the border and across the pond).

btw - I had a 5 on my AP American exam, a 5 on my AP US Government exam, a 780 on my US History SATII, and have my degree in Ethics, History, & Public Policy, so yes I know what I am talking about in terms of my own country - thank you.

Spacecadet - that has to be one of the most uninformed posts I've seen here on A.net. States do NOT have power to vote on or approve treaties as those rights are specifically reserved for the Federal gov by the Constitution. Further, any action a state took that were in violation of a federal treaty would be subjugated to federal jurisdiction.

Now on the other hand, most of our European and Canadian friends here are completely missing the boat on this issue. And that issue is, the 1992 agreement on "Direct" government subsidies for aircraft development costs. The truth of the matter is the european governments have been providing billions of dollars of direct cash subsidies to Airbus. The 1992 agreement limited those subsidies to 30% of an aircraft programs development costs. During the same period the amount of direct subsidy US manufacturers (Boeing) have received is ZERO - this is a fact.

The point made in several posts in this thread the US manufacturers have received subsidies from the states is not accurate and just another example of Airbus PR trying to obsfucate the issue. The facts are that no state has provided direct cash subsidies to any US manufacturer. Several states such as the recent "package" offered by Washington state to encourage Boeing to manufacture the 7E7 in Washington have provided beneficial changes in tax law to improve the business climate in that state as an incentive for the work (i.e. jobs as Whitehatter suggests which are just as important here in the US as they are in Europe!! ). Same applies to the state of Illinois and the move by Boeing to Chicago. There it was a case of corporate tax breaks to encourage Boeing to move its corporate headquarters there rather than manufacturing. Contrast this to the situation in Europe where Airbus pays almost ZERO tax.

Now, perhaps the most mis-understood issue out there is this idea that Airbus is paying back these subsidies as "loans". It's often stated that way by both the Airbus PR/marketing machine and the French/German gov'ts to make them appear more palatable, both to regulators and their own citizens. The truth of the matter is there are no such loans. Certainly nothing that resembles commercial financing. Instead, what they have is an agreement to 're-pay' the subsidies over time as aircraft are delivered. The way the scheme works is that Airbus gets to estimate the size of the market for each program subsidies are provided for and they then make a payment for each aircraft delivered. And if they eventually deliver the number of aircraft estimated, the subsidies or "loans" will have been re-paid.

For example, the $2 billion dollars in subsides provided over time for the A300/A310/A300-600 program were supposed to be paid back based on a market size of 2,000 airplanes; or with a $1 million dollar payment per airplane delivered. Unfortunately, that program has only delivered about 800 airplanes, so over 60% of the "debt" remains outstanding. The nasty secret is that if Airbus cancels the program, the remaining debt is forgiven by the governments. Now you understand why Airbus estimates the size of the market for an A380 size airplane at over 1,000 units. With about $4 billion in direct cash subsidies ( er... loans, right loans) to pay back that's almost $4 million per airplane. Unfortunately, Airbus' track record is not very good with only the A320 program having a chance at paying back it's subsidies. The A300/A310/A300-600 programs will certainly cause over $1 billion in losses and the A330/A340 programs will probably double that. The amazing thing is that European tax-payers either haven't woken up to this or are okay paying the price just to have some symbol such as Airbus to point to for national pride.

Either way, it will be interesting to see how this issue goes. While it appears Bush is finally picking this up as an issue, I would not be surprised to see Kerry take it even further if elected.

What some people here fail to understand is the very different view on these 'subsidies' on both sides of the Atlantic mostly comes from the very different way in which both sides deal with unemployment.

In continental Europe, when people get sacked, they turn to the government to get an allowance which will help them to get on with their lives as before. The system and its benefits varies from country to country, but in Belgium for instance, any unemployed person with a family will receive around 750 euro or roughly 900 dollars a month until he/she finds a job. In France for instance, unemployed are paid more than 2 thirds of their last salary.

Needless to say something equally generous does not exist across the Atlantic. If you get sacked there, you quickly are on your own and don't expect any government to step in to help you out indefinitely.

Taking this difference into account, it is easy to see why governments in Europe are eager to spend a few hundred of millions on projects which generate massive employment for many tens of thousand of people, isn't it? In the European social-economic model it constitutes a sound investment! Governments hand out the money ONCE and create jobs for life in return (thus drastically lower their future unemployment payments) and on top of that, they might get (part of) their money back over time!

From an American point of view of course and in the absence of a costly social security system, all money handed out to a company like Airbus under the terms agreed to by the European governments must be considered gone and are thus to be considered plain subsidies.

The lesson to be learned from this is things are never BLACK nor WHITE when you look at them from a different angle.


[Edited 2004-08-15 10:41:38]

Never heard about Eva Hedlund (sound swedish though) 

IMO €U in Brussels is a bureaucratic castle...

Micke//SE

Sabenapilot, I will have to agree with you that there are very different views on where to obtain financing for new projects depending on which side of the pond you happen to be on.

However, I to this day will refuse to call military contracts to Boeing "Subsidies". The fact that a product is expected to be delivered precludes that title.

Needless to say something equally generous does not exist across the Atlantic. If you get sacked there, you quickly are on your own and don't expect any government to step in to help you out indefinitely.

Um, when I got laid off from my dot-com job, I received 1300 a month until I found a new one. We have unemployment in the US-I don't think you have done your homework here. The difference is, it's time limited in the US. I could only have received 6 months tops of benefits.

The money comes from unemployment insurance premiums paid for by your previous employer to the state government.

Brons2, if you think that unemployment benefits are unlimited (in time) in Europe, then you're mistaken as well - although I'm quite sure it's not just 6 months here, but you don't get full benefits for life...

Nonetheless - back to the topic...

All the people claiming that Boeing does not receive "help" from the federal level, please do a bit of research on the topic of offshore tax credits - just to quote from one article in the Seattle PI from, admittedly it's a while back already, February 2000:

The World Trade Organization yesterday rejected a U.S. appeal aimed at saving tax breaks that help companies such as Boeing and Microsoft compete overseas, but Treasury Secretary Lawrence Summers said the United States will not abandon the program.

This is one of the reasons why quite a few people find it ironic, to say the least, when it's now the US saying they'll be going to the WTO...

Next quote:
The Foreign Sales Corp. program enables U.S. makers of computer software, airplanes, chemicals, machinery and many other products to shield some export income from taxes. The tax breaks for companies such as Microsoft, Boeing and General Motors would be worth more than $15 billion over the next five years, according to congressional estimates.

Did you catch that number? $15 billion over the next five years! True, not all of it is for Boeing, it's actually a sum of the amount of credits that Boeing, GM, Microsoft and others have received, but after all, this program did not just start in February 2000 but has been going on for quite some time (since 1984), so I'd say it's fair to assume that Boeing has received quite a chunk of money from it.

Here's the link to that article: http://seattlepi.nwsource.com/business/brak24.shtml


Then, in 2002, there's this article published in Forbes...

In Geneva yesterday, the trade organization's Appellate Body upheld a European Union challenge to the U.S. tax law, which provides tax breaks for firms that export through offshore subsidiaries. The law was held to be an illegal export subsidy under WTO rules.

The U.S., of course, helped write those rules, to promote free trade. Now the EU has used them to cunning effect, and as a result it may seek to impose some $4 billion in retaliatory duties on U.S. products.

See those words that I highlighted, especially the word between "export" and "under"? Yes - "subsidy".

And before some of you go off saying things like "the WTO is just a club that Europe uses to bash the US" or similar idiotic ideas, reread the following from the second paragraph: The U.S., of course, helped write those rules, to promote free trade.

Here's the link to that article: http://www.forbes.com/2002/01/15/0115wto.html

It's quite easy to find dozens of articles about the subject... so before you go on claiming moral high ground on the part of the US, do some research first: both sides have dirtied their hands, and only a fool could believe that one side in this micro-conflict is really any better than the other.

People, and especially politicians, on both sides should take their heads out of the sand (or wherever else they've got them) and for once not hold big speeches about what they might be doing at some point in the future, but actually convince people by the actions they've taken - but even that's nothing specific to the US... when Gerhard Schröder was elected he said that he only deserved to get re-elected if he could fulfil his goal of halving Germany's unemployment rate of around 4 million people within the 4 years he was elected for... after those 4 years we were above 4 million and practically no-one cared... after all, it was just a politician's promise - and, according to the appologists for Schröder, it wasn't his fault anyhow, with 9/11 happening, the economic situation around the world being bad, etc...

Politicians all over the world always have said what people want to hear - and that will, most likely, never stop: why the electorate keeps falling for those lies, I don't really know...

Regards,
Frank

If you think Airbus doesn't get local tax breaks like Boeing does, then you're mistaken. Just because you don't hear about it, it doesn't mean it does not exist. You heard about Boeing's tax breaks, because Boeing made it an open competition for states that want Boeing's business.

If you think military subsidies are exclusive to Boeing, then once again you're mistaken. What do EADS and BAE SYSTEMS do? Do they not get government contracts? If you insist that Airbus is a separate entity, then I can insist Boeing Commercial is a separate entity, too.  

If you think government sponsored R&D is exclusive to Boeing, then once again you're mistaken. NASA has a larger budget than similar European government-run research agencies, but NASA doesn't just support Boeing. The US has a much bigger aerospace industry.

All the subsidies that Europeans think Boeing has, Airbus has it, too. But Boeing doesn't have launch aids.

Last but not least, if you think the European governments have made a lot of money on the launch aids to Airbus, then you may want to do some research. I have seen some recent documents published by the British government. They have only recovered the 320 investment. Although they claimed it was a good investment, but based on the limited numbers I have seen, the returns looked pretty marginal to me. I think I could have done a lot better by investing the same money in 1984 on any major index funds than the European government did with their 320 launch aids.

[Edited 2004-08-15 14:51:22]

"During the same period the amount of direct subsidy US manufacturers (Boeing) have received is ZERO - this is a fact. "

Some people appear to have crucified themselves to this "fact" they've made up themselves. That it isn't a fact in the dictionary sense of the word doesn't seem to bother these guys at all.

It sort of reminds one of the Bush administration: when they tell a lie and the lie's discovered and debunked, they just repeat it and pretend everything's allright.

IAHtown - you are COMPLETELY wrong! My government pays subsidies to many international companies for locating their businesses in the UK. If Boeing wants to build a plant in the UK there will be plenty of subsidies available to help them do it.

Leskova cites some interesting examples, but once again most of this is a repetition of the same old Airbus PR/marketing lines.

The WTO dispute stems from the breakdown of a previous policy agreement wherein the US and EU countries agreed not to drag tax policy into trade disputes. The EU changed all that in the early '90's by with the WTO complaint against the US' FSC or Foreign Sales Credit which provided a tax credit for revenue earned by on foreign sales, i.e. exports.
(for specifics: http://journalism.medill.northwestern.edu/docket/01-1209fx.html

A key paragrah if you don't want to follow the link is: "The FSC credit was originally created because of a fundamental difference in American and European taxing philosophies. While the United States employed a direct tax system whereby corporations’ worldwide income was taxed regardless of whether the source of that income was domestic or foreign, the European nations used an indirect corporate taxing system consisting largely of territorial and value-added taxes. Because European corporations’ exports and foreign subsidiaries were largely exempted from taxes, Congress created the FSC break to assuage what they perceived as an undue shackling of the American export industry in relation to that of Europe."

Doesn't it seem a bit unfair for the EU to object to the US providing a tax credit for foreign earned income while the EU themselves excuse their companies from almost all tax on foreign earned income.

As an example, if Pratt & Whitney sells $100 million worth of engines to Korean Airlines, not only must they pay local tax in Korea from the sale of those engines, they are also taxed 34% on corporate earnings from that sale in the US. On the other hand, if Snecma sells CFMI engines to Korea, while they still must pay the local tax in Korea, they are exempt from any tax in France on income earned from that foreign sale.

The heart of the EU complaint is that the FSC (and subsequent ETI) tax credits are unfair because they are selective and not uniformly applied. That's a matter of interpretation as any US company can set up a foreign sales entity to take advantage of the tax credit, however, the WTO has chosen to interpret it the way they have and the US will comply.

The most obvious solution (one that I would love!!) but one most foreign nations, especially those in the EU, would hate; is for the US to adopt the exact same foreign tax structure as they have in Europe and in most of Asia and excuse ALL foreign earned income from tax. Not only would that be "Fair" if it exactly mirrored EU tax policy, but it would also reduce the price of US manufacturers products, Aircraft (Boeing), engines (PW, GE), Avionics, etc... by millions of dollars. Somehow, I don't think Airbus or their EU government supporters will like that.

So once again, before accusing the US of being unfair and regurgitating Airbus PR's distortions, understand the facts.

Trevd, while I'm certainly no expert on European tax systems, I can tell you one thing - your example (Snecma & P&W selling to Korea) might work for France, but it wouldn't work here in Germany.

If your company has an income, you pay taxes on that income.

If that income is from business dealings outside Germany? Good for you, but tax-wise, that doesn't make a difference.

So once again, before accusing all of the EU of being unfair and regurgitating whomever's PR distortions, maybe it would do you good to also understand the other half of the facts...


As for the US changing their tax system to copy the "European Tax structure" - as if there were such a thing - be my guest: I've often said that Germany (taxes are decided solely on a national level in the EU, the EU does not have any influence on that... yet...) should look at other countries, including the US, to see what parts of their tax systems are better than our horrible system - and to copy the elements found in other systems that are better than ours... and I think this is something that all nations should be doing: don't just hang on to a tax system because it's been there for years or decades (some elements of Germany's tax laws date back to the early 1900s) - everything's being modernized, it's more than time for tax systems to follow that lead.

Regards,
Frank

On the other hand, if Snecma sells CFMI engines to Korea, while they still must pay the local tax in Korea, they are exempt from any tax in France on income earned from that foreign sale.

??????

Since when ?
That would be very new and I really doubt it's true. We have precisely a great debate in France for years because some politicians are making as a program to cut down taxes on enterprises profits which are - according to them - the highest in Europe, if not in the world.

So please show your sources, I'm VERY curious to see them.

The question is the level of the playing field at the moment - how level is it?

Taking into account the financial support for each manufacturer, is it balanced? Boeing have publicly stated their reason for taking on the EU now is so that Airbus cannot develop a competitor to the 7E7, even though Japan for example is contributing 600m of non-refundable aid to the 7E7 program.

Reading up a bit more on this today, the Boeing position is very unclear.

There is a trade agreement which both Airbus and Boeing agreed to in 1992. Both make use of the agreement, and both have taken advantage of its terms. I can imagine the potential need for re-discussion, but where does the Bush attitude of 'I'll take them to court' come from? What exactly can he take the EU to court for?

I dont know why there are complaints about financial aid. Developing new aeroplanes costs a lot of money. Aeroplane manufacturers whether boeing airbus need it. I think the systems working you have two strong competitors that are producing great next generation a/c.

There is also the fact that companies can recieve indirect benefits from governments. For example Boeing has a large military department. Now whos to say the tech from working on military contracts, which is heavily funded and subsidised, doesnt find its way to a commercial aircraft. I know in the past this has happened with the 707 (although entirely funded by boeing) in which boeings experience on its b52s helped them immensily in designing and manufacturing it.

Im not saying this is wrong im saying it is essential. You cannot really define what aid should and shouldnt be allowed. Take concorde as another example that consumed vast amount of government aid but it was worth it.

Possibly a better idea would be to not limit aid but to extend it to everyone. Say give Boeing and airbus 10 billion dollars each "now lets see what you can do"

Leskova,

Please go back and read my post. What I suggested was unfair was not some overall EU tax scheme (I know there isn't one),but rather that the EU would object to the US strucuture and its attempts to accomplish in part what the EU and national tax laws allow in full.

And while you are correct about German tax law - German companies are subject to tax on their global income, isn't it convenient that Airbus is registered as a Dutch company where foreign earned income is excused from tax.

To borrow from the German tax code: "Foreign corporate entities whose registered or adminstrative office is not located in Germany are considered nonresident and are subject to corporation tax on income from domestic sources only. The income of a nonresident company which is derived from the company's permanent business establishment in Germany is subject to a corporate income tax rate of 25%. Otherwise, a nonresident company's income, e.g. from royalties, is usually taxed by way of withholding (details under "Taxation of Nonresidents"). Tax may be reduced under a tax treaty."

Putting these pieces together dramatically reduce the tax burden to Airbus/EADS. Very convenient. Makes EU objections to FSC and ETI seem less honest, doesn't it?

Regards... Trev

UPDATE!

Follow the link: http://www.dw-world.de/english/0,3367,1431_A_1298566_1_A,00.html?mpb=en

Bush Mulls WTO Suit Against Airbus

The US considers suing Airbus over the favorable government loans it receives, but the EU strikes back saying Washington has blocked previous efforts to reduce state loans and subsidies.

During a speaking engagement in his reelection campaign, United States President George W. Bush said he is considering filing a lawsuit with the World Trade Organization against European airplane manufacturer Airbus, the world market leader for new sales, for what he described as "unfair" subsidies.

"I've instructed the U.S. Trade Representative, Bob Zoellick, to inform European officials in his September meeting that we think these subsidies are unfair and he should pursue all options to end these subsidies, including bringing a WTO case if need be," Bush said on Friday.

The president was in Seattle, Washington, on a campaign stop and met with a group of managers at Airbus competitor Boeing. "We believe in free trade, but we want that free trade to be fair as well and getting rid of the subsidies of Airbus will make the trade fair, will make the playing field level," Bush told the group.

I wonder if Bush has considered what might happen to Boeing if an EU counter-proposal to the WTO would force the US to dramatically cut subsidies to Boeing. Probably he doesn't care, since that would happen after the elections in the US.

And a related AW&ST article I didn't see posted elsewhere, here...

http://www.aviationnow.com/avnow/news/channel_aviationdaily_story.jsp?id=news/wil08174.xml

"And what has Mr. Kerry done about all this? I'll tell you what: Nothing."

Not quite true, Elwood. Mr. Kerry mentioned early on, before he became the Democrats' front-runner, that it was something he thought should be looked into, although he was a lot more low-key than Bush's latest salvo.

Whitehatter, it's been stated before in this forum that government loans on the A380 are forgivable; they can be waived if the program proves unprofitable. Although I think this is unlikely, Airbus does have an out in case...

http://murray.senate.gov/news.cfm?id=223977

"Airbus also offers walk-away rights to some customers to get them to buy Airbus planes. This means a customer can walk away from an order with no hard feelings. In some cases, like the A380, Airbus gives walk-away rights after delivery of the aircraft. The airline can return the plane and get its money back. It’s a great deal for airlines, and it's only possible because of the subsidies and forgivable loans that Europe showers on its domestic industry."

http://commdocs.house.gov/committees/science/hsy73330.000/hsy73330_0f.htm

"The European governments are now providing direct subsidies to help Airbus with its biggest project ever—developing the mammoth A380 two-deck jetliner capable of carrying 550 passengers in three classes of service. Airbus estimates that it will cost $10.7 billion to develop the A380, which translates into more than $3.5 billion in low interest, conditionally repayable government loans. With the possible exception of one Airbus program, the principal on these development loans is usually not repaid. Certainly, none has been repaid on the kind of ''commercial'' terms, including a market rate of interest, that our own industry would be required to pay. In fact, the Commerce Department estimates that the commercial value of these unpaid loans for the Airbus programs exceeds $30 billion."

While it's encouraging that the E.U. is willing to answer and discuss the Bush challenge, I suspect that neither side will be willing to compromise very far. Unless the finances of both Airbus and Boeing are open for scrutiny by the W.T.O., who'll likely have to rule on this matter, I'm not sure this will be solved. In fact, I suspect the fur may fly in these talks and that they could well degenerate into a trade war, something counterproductive for all.  

AvObserver,

A few paragraphs down in the article you quoted we read

"Federal R&D investment in the aerospace industry has dropped from $27 billion in 1987 to $10 billion in 1998."

Yet Mr. Douglass (CEO of Aerospace Industries Association of America, Inc.) finds the energy to be concerned of the terms of Airbus's loans.

A few paragraphs down in the article you quoted we read

"Federal R&D investment in the aerospace industry has dropped from $27 billion in 1987 to $10 billion in 1998."

Yet Mr. Douglass (CEO of Aerospace Industries Association of America, Inc.) finds the energy to be concerned of the terms of Airbus's loans.


When you make this kind of statement, please check how much of the money is for civil aviation R&D and how much directly benefits Boeing. Remember, Boeing is just one of the many aerospace companies is the US. You should also check how much European agencies spend on R&D that directly benefits Airbus. If you have checked these numbers, you'll see Boeing Commercial is not getting any more government R&D fundings and/or results than Airbus is getting from the European governments. All of NASA's R&D projects are long-term ones, because they don't want to be viewed as doing research for corporate America. So, these projects don't usually applicable to current Boeing products, but might be applicable somewhere down the road. The same can't be said about some of the European government-sponsored R&D. For example, some of the composite material R&D programs carried out in Europe in the last few years are directly for the A380 porgram. In the US, this is called corporate welfare program.

The hypocrisy in Bush threatening to go to the WTO on Airbus subsidies is staggering. No nation in the developed world has thumbed its nose at WTO rulings more often than the U.S.

Take a look at the softwood lumber trade war with Canada -- the largest trade spat in the history of the world. For 20 years, U.S. protectionists have harassed Canadian lumber exports on completely fabricated accusations that they are subsidized.

Not once in those 20 years has a countervailing duty, or an anti-dumping duty, withstood scrutiny from a WTO or a NAFTA dispute settlement panel. They consistently throw them out (NAFTA dispute panels, by the way, are often comprised of a majority of Americans).

Yet here we are today with a 27% combined CVD and antidumping duty still being collected on more than $6 billion in annual lumber trade. As of today, there is more than $2.5 billion in illegally-collected duties sitting in the US treasury. Despite both NAFTA and WTO (agreements that the US willingly signed) throwing out nearly every aspect of these duties, the U.S. is indicating that it won't return the money!

Even worse, that $2.5 billion could be paid out, under the Byrd Amendment, to the U.S. lumber companies that brought the charges against Canadian producers. The WTO ruled more than a year ago that the Byrd Amendment is illegal -- but it's still on the books and payouts are still being made.

There was a time when the U.S. could rightfully claim to be a world leader in trade liberalization. Those days are long gone. The truth is, the US wants everyone else to follow a rules-based system of global trade -- but it reserves the right to ignore those rules when they go against American interests. The tragedy is, if they don't clean up their act, they'll do long term damage to their own economy and hasten its decline.

I can imagine the potential need for re-discussion, but where does the Bush attitude of 'I'll take them to court' come from?

I can agree with this. Let's sit down and negiotiate something new, if the old agreement is untenable. This bonbastic bluster doesn't help.

The problem with re-negotiating the old agreement is that according to Spacecadet, a contract made with the Federal govt is not binding on the States. Should we negotiate a separate deal with each state?.

Once we have decided who to negotiate with, we need to decide what is or is not a subsidy. The obvious issues here include defence contracts, where often there is a monopoly or near monopoly supplier. Contrary to L188 these can be a form of subsidy. If I can buy an A320 for £20M when I could buy a B737 for £15M, then unless there are sound business reasons for doing so, then that is a subsidy.

I have no problem with people choosing to subsidise for political, technology or employment reasons, but let us not kid ourselves that only other people do it.There is also the issue of loans, (by whatever definition you decide) and straight gifts.

I do not know what the situation is in the US regarding unemployment pay, which I suspect varies from State to State, but I do know that in the UK, that it lasts for no more than 12 months. After that it is replaced by Social Security which is discretionary. For someone without a family to prosper on either, you need to study the system as a full time occupation.

One difference between Europe and the US regarding employment is redundancy payment. In the UK, the requirement is 1 week for each year, based on a weekly salary of £250, with older workers getting a bit more. I believe that the figures are higher in Europe. Given that the burden for all of this falls on the Government, would mean that Governments will try to avoid redundancies.

Once we have decided who is to talk and what the key terms mean, we can get down to the serious business of hammering out a deal.

However we have accept that there are political issues here, and also that competition not only needs to be fair, but needs to exist.

If Boeing or Airbus disappeared then there would be an effective world monopoly, which would only serve the monopoly supplier.

This is not aimed at Bombardier, Embraer or Tupolev, but there are only 2 suppliers able to provide the full airliner range. In the under 100 seat market the situation is somewhat healthier.

Good post Arrow, what you say is sooo true. Softwood lumber is only one example as you know. I would love to know what their involvement was regarding the AVRO Arrow/Bomarc Missile issue or Britain's TSR 2 program!

GU

""Federal R&D investment in the aerospace industry has dropped from $27 billion in 1987 to $10 billion in 1998."

Yet Mr. Douglass (CEO of Aerospace Industries Association of America, Inc.) finds the energy to be concerned of the terms of Airbus's loans."

Excellent point, Joni and quite apart from the specific argument over the subsidies is a core fact that the U.S. has neglected its aerospace industry in recent years while Europe increasingly treats theirs as a major asset. This was stated in a recent AW&ST editorial and it certainly is a factor in the argument. You're correct in pointing out that the U.S. must get back to robustly supporting its industry, rather than merely point fingers when said industry is at a competitive disadvantage. I don't disagree with that.

AvObserver,

If US aerospace companies are at a competitive disadvantage because of lack of federal R&D investment, while EU companies are taking full advantage of funding received in line with established guidelines and rules, then the reason for this competitive disadvantage lies wholly within the US. It shouldn't be forgotten that the EU themselves asked for a review of the 1992 agreement in 1997, a request which was turned down by the US.

The US have explicitly stated that the reason they want a re-negociation now is to prevent Airbus developing successor to the 7E7 using the same methods that Boeing did to fund the 7E7. That in itself raises questions on the Boeing/US stategy.

Perhaps, but I've a feeling that if the U.S. were to turn around and vigorously support its aerospace industry the same way Europe does now, including generously available low-interest loans for commercial programs, on top of whatever military underwriting there might be, it would be Airbus and the E.U. that go screaming to the World Trade Organization, instead.  

Dynkrisolo,

It would appear that you _have_ checked those numbers, and arrived at a dramatically different conclusion from the one arrived at by the European Parliament.

AvObserver,

Maybe, but if the funding of the EU/US was in line with an international agreement, there would be no case to answer. Today there appears to be no case to answer, only a potential need to re-discuss the terms of the agreement. Mr Bush's words of 'take them to court' makes me smile a bit, what case would the EU have to answer? What would be the charges?

Rgds.