Has Europe no shame?
Three months ago, news began filtering out of Geneva concerning a confidential decision in Boeing's (NYSE: BA) World Trade Organization complaint against Airbus. Boeing declared the ruling "a powerful, landmark judgment," and a "clear" condemnation of Europe's practice of subsidizing the launch of multiple Airbus-manufactured aircraft. Airbus countered that, "70 percent of the US claims were rejected," and the ruling had no significance "in any way" as regards European plans to subsidize future Airbus planes such as the A350.
But here on the outside of the dispute, no one knew for sure who's version of the story was the right one -- because the actual text of the report was, as I said, "confidential."
Well, now we know. On Wednesday, the full decision became public as (and I kid you not. This is how Reuters described the scene) "the 1,050-page documents were wheeled out on trolleys for reporters" to review. And what does the actually decision say, now that it's public?
- Airbus received $15 billion in illegal "launch aid loans" and $5 billion in other illegal support from European governments. Boeing suggests that aid for the gigantic A380 superjumbo alone totaled $4 billion.
- This aid came in the form of "unsecured loans granted to Airbus on back-loaded and success-dependent repayment terms, at below-market interest rates." (In other words, not only did Airbus receive financing at below-market cost; if it failed to sell the airplanes, it would gotten a plum deal!)
- Absent such subsidies, Airbus would have been a "much different, and we believe a much weaker, manufacturer," and Boeing "would have had a larger market share."
Case closed?
Sounds like an open-and-shut case, right? Well, not so fast. Turns out, even in the face of the now-public facts, Airbus is still singing its same old tune of three months ago:
- 70% of the U.S. claims "were rejected and wild allegations have been proven wrong."
- "There is no requirement to repay anything in the WTO process," and specifically, no requirement to take out commercial loans and repay its EU sponsors the $4 billion received for the A380.
- Nor does the ruling prevent Airbus from obtaining even more subsidies for its A350 airliner, now in development.
- And of course, there are reports that the EU is planning to appeal the WTO's verdict -- putting off the 90-day deadline for WTO compliance ... indefinitely.
Last but not least -- in sheer chutzpah -- EU Trade Commissioner Karel De Gucht declared that, "The EU remains committed to a negotiated outcome to the dispute with no pre-conditions on either side."
Shame, shame on EU
Seriously, EU? Now you want negotiations? Because -- and maybe I missed the memo -- I don't recall Europe's competition police expressing such strong commitment to negotiated, bipartisan solutions to past trade disputes.
What I do recall is former European Commission Chair Neelie Kroes prejudging American companies like American Express (NYSE: AXP), MasterCard (NYSE: MA), and Visa (NYSE: V) in an investigation into credit-card transaction charges, and decrying Europe's rivals for earning "outrageous" profits. I remember how the EC demanded that Coca-Cola (NYSE: KO) offer up shelf space to rivals in its store-located refrigerators, in the interests of "improving competition." (Even as EU subsidies were forcing plane manufacturers like McDonnell Douglas to merge to survive, decreasing competition in the plane market.) And how it stepped in to quash a planned merger between General Electric (NYSE: GE) and Honeywell (NYSE: HON) -- a merger that would have, purely coincidentally, I am sure -- have created a juggernaut capable of threatening segments of Airbus's business. The avionics division was a key source of European distaste for the merger.
Turnabout is fair play, but ...
Even as we speak, American legislators are waxing grandiloquent about Europe's foul play, insisting now's the time to kick 'em while they're down, ban Airbus-parent EADS from the KC-X Tanker Competition, and take similar retaliatory measures -- but I disagree.
Seems to me, if you want to ensure the EU "does right" by its trading partners, the best time to do this is right after an impartial observer has declared: "They done us wrong." If you're going to negotiate, it's best to negotiate from a position of strength. Today, Boeing's got a chance to turn the other cheek ... and negotiate from a position of real strength. With this week's WTO report in hand, it can demand new, fairer ground rules for government of airplane manufacturing that can endure for decades to come.
But it's got to act fast. In just two weeks, the WTO will publish a preliminary report on Airbus's counter-complaint against Boeing for subsidies it has allegedly received from the U.S. government. Airbus will receive its own set of facts, with which to argue that Boeing is every bit as bad as Airbus has been, and the momentum on this debate will shift.
Now's the time to grant the EU's pleas for "negotiation." Now's the time ... to kill 'em with kindness.
