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:: November 2004 Letter ::

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Dear Fellow Trade War Spectators,

Talk about obligation. I wish I could write this letter about anything except the Boeing/Airbus trade complaint, but it’s too big to ignore. Since everyone else is writing about it, I’m just a cog in a big Washington-based machine. To give myself an illusory feeling of power, I’ll just analyze some issues and arguments and arbitrarily award points to each side. Some may criticize this method as “unscientific,” to which I say, “so what?”

The Basic Principle. In principle, Boeing’s right. The indirect subsidies are about the same in the US and EU. The only difference is Airbus’s direct launch aid. The perpetuation of predatory trade practices is simply unjust. Airbus bet wrong about the A380, and the 7E7 is a major competitive threat. If Airbus needs an all-new or derivative A350 to counter-attack, it’s unjust to use public money to make it happen. Result: Nothing. Nada. Zilch. As Oliver Wendell Holmes said, it’s not a court of justice; it’s a court of law.

Airbus’s Defense Subsidy Argument. This completely disingenuous line posits that Boeing receives all kinds of defense business that’s suitable for technology crossover. The Europeans seem to be arguing that Airbus’s parent companies, EADS and BAE, are actually in the business of baking chocolate chip cookies. And that composite-rich Airbus Military Company A400M is most inconvenient, if aircraft can be called inconvenient. Result: a few points for Boeing, I guess, or perhaps a few demerits for Airbus. I’m just talking.

Darleen Druyun. For all we know she might also have ‘fessed up to the Lusitania, the Yankees, and Three Mile Island. It doesn’t matter whether this case reflects any realities in US defense contracting or not. What matters is that it confirms the Europeans’ worst suspicions about Boeing’s indirect DoD subsidies. They can use that to justify jetliner aid to Airbus. A real Law And Order moment—Airbus lawyer: “America subsidizes through defense. Everyone knows about the Druyun case…” Boeing lawyer: “Objection!” Airbus lawyer: “Withdrawn. Nothing further, your honor.” Result: 14,101 points for Airbus.

Transparency. If there were a European Darleen Druyun case, you’d probably never hear about it. The US is more transparent in its legal processes and in its indirect subsidies, and Europe can use that. Result: 25 points for Airbus.

Airbus’ Weird Microsoft Flirtation. Back in September, Airbus furtively joined Microsoft’s defense against the EU’s antitrust case. To summarize, Airbus wanted to preserve its right to “bundle” expensive equipment into airliners, above airlines' wishes. That’s prep work for a near-monopoly future, and seems to reflect Europe’s plans for more predatory jetliner development schemes. Result: 12,815 points for Boeing, although it’s kinda circumstantial. And Airbus wisely withdrew its support when they realized how god-awful it looked.

Damages. Damages are crucial to any WTO complaint, and Boeing’s nothing if not a damaged company. A consistent 15-year market share erosion to the once-marginal Airbus, which has gone from 15% in the ‘80s to over 50% today. Result: 116,412 points for Boeing. And Europe’s efforts to sue Japan, Italy, or Washington State over 7E7 funding really can’t go anywhere. They can’t prove damages. What can they say—“We’d have 75% of the market if Boeing didn’t get this aid?” Or better still, “Without that aid to Boeing, we’d have gotten Primaris to order A350s instead of 7E7s. If we knew their phone number. Or who the hell they were.”

Boeing’s Balance Sheet. This complicates the above damages issue. At no point in the past decade was Boeing financially unable to fund new aircraft. They simply chose to not spend their ample cash on jetliner development, giving Airbus a strong product advantage. Just because one guy ran the race on illegal steroids doesn’t mean the other guy had to stay up late the night before pounding tequila shots. Result: 109,270 points for Airbus. The Euros can argue that Boeing’s greedy shareholders and American hyper-capitalism are the real culprit behind Boeing’s market share loss.

The final result, which I haven’t bothered to calculate, seems to be a slight victory for Boeing. If WTO really does rule on this, Boeing might win some kind of victory. But then there’s the issue of enforcement. WTO’s elite enforcement division comprises a middle-aged economist with horn-rimmed glasses. He gives stern lectures to recalcitrant trade rule violators. Actually, WTO gives politicians the right to retaliate, which could result in a trade war, which the politicians might not want. That’s why Brazil and Canada have largely gone on their merry subsidizing ways, even though they are, in highly technical trade language, guilty as sin.

I should also mention that this case doesn’t have to go to the WTO. A negotiated new bilateral can still happen, and could be in both sides’ interest. But the European response might go like this: (1) “We really like our jetliner industrial policy. It works for us. Thanks for asking.” (2) “We have no interest in stopping this aid, no matter what the logic, because our workers and other pals will hate us.” (3) “See you in WTO court, chump.” As if to signal this approach, Airbus has politely indicated that it would request $1.3 billion in A350 launch aid, saying that it didn’t need the cash, but since it was entitled to it, what the hell. Hey, that’s why rich kids get student loans, right?

Like Airbus, I would like a subsidy. But all I’ve got is my day job. The monthly fruits of this labor: updates of the CRJ, NH 90, Lynx, A/T-50/KT-1, Citation, and TBM 700. Have a good month. And vote early and vote often.

Yours, Waiting For Things To Turn Ugly,

Richard Aboulafia

 

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