Speech by EU Commissioner Peter Mandelson
Press Room of the European Commission
Brussels, 31 May 2005
I would like, first, to repeat what the USTR and I said in a joint statement last night: we have important bilateral and multilateral activities to work on in trade and we will do our utmost to avoid this dispute getting in the way of this activity.
I have just returned from a 24-hour visit to Geneva where I had a succession of meetings concerning the Doha round with ambassadors, negotiating group leaders and other WTO personnel. I was struck by the complexity of the Round, its slow pace and by the urgent need for an injection of energy into the talks. I was also struck by the number of WTO members who said they wanted Europe and America to supply more of this energy and to show leadership together.
Instead, Europe and America are going head to head over the commercial rivalry of two companies, Boeing and Airbus, who should be left to compete in a global market place big enough to accommodate them both. I am disappointed that the US has chosen this confrontation with Europe. America’s decision will, I fear, spark probably the biggest, most difficult and costly legal dispute in the WTO’s history. It will be hard fought on both sides and, I can assure you, Europe’s interests will be fully defended.
Airbus’ manufacturing supply chain stretches across up to half of the EU’s member states. Tens of thousands of people’s jobs are involved, and not just in Europe but in the United States as well. Millions of passengers fly in the company’s aircraft every year. Commercially, Airbus is a huge success. This is why Boeing has been so instrumental in bringing this case to the WTO: not because it fears subsidy but because it fears competition.
In order to sustain conditions for fair competition in civil aircraft production, and to maintain a proper commercial balance between the two companies, the EU is today resuming action in the WTO to confirm, through a panel, the illegality of subsidies paid to Boeing.
I am confident about the strength of Europe’s case. Just look at the facts concerning Boeing’s colossal use of public funds and taxpayer subsidies in its operations:
-- Boeing’s different forms of support from the US federal and state governments benefit the development, production and sales of its civil aircraft. Taken together, US support has consistently exceeded the 1992 EU-US Agreement by 2 to 3 times. None of these sums - unlike Airbus loans - have been reimbursed.
--In the US , Boeing receives subsidies from NASA and Department of Defense programmes and contracts estimated at $22 billion over the past decade. This has financed specific Boeing technology research from which the 787 airframe is being constructed as well as sophisticated software tools that Boeing will use for 787 design and manufacture. This aircraft, the 787, will receive American taxpayer subsidies amounting to 70% of its total development cost. Boeing will contribute only 15%.
-- It is widely acknowledged in US congressional circles that non-competitive “military” contracts at inflated prices benefit Boeing’s civil aircraft business. In other words, R&D for Boeing’s civil airplanes is being paid for from US military budgets, rather than Boeing’s own pocket.
-- In addition, Boeing continues to benefit substantially from US Foreign Sales Corporation tax breaks, infringing WTO law. At sub federal level, the State of Washington has committed $3.2 billion in tax breaks and £4.2 billion in infrastructure payments to Boeing for production of the 787 over the next 20 years. Other states and cities, such as Kansas and Wichita do likewise.
-- Last but not least, in agreement with Boeing, the Japanese government are offering up to $1.6 billion as launch investment for the 787. Given their objection to such investment in Europe’s case, I believe the US position is inconsistent.
I believe it should and could have been possible to reduce and discipline this support - on both sides - by negotiation. That’s why I went the extra mile for an amicable solution, most recently last week by proposing an accelerated negotiation in which I was prepared to offer a reduction of up to 30% of launch investment to the new A350 - and on tighter terms - in return for a similar offer on the American side. But there was no appetite for compromise in Washington.
Boeing demanded the complete, immediate renunciation by Airbus of all repayable, royalty-based launch investment as a prior condition to negotiation. In doing so, Boeing ensured that no negotiation took place. No commensurate balancing package was on offer at any stage to deal with Boeing’s extensive multi-billion dollar financing from the American taxpayer.
This is why there is now no alternative to arguing out these issues at Geneva, at great legal cost and expense of time and energy of trade officials involved on all sides.
I regret this diversion of effort but Europe is ready. And in the meantime, I will do anything I can to stop the decision adversely affecting wider EU-US relations and the important work we have together to stimulate world trade and development, to eradicate global poverty and bring jobs and opportunity to our own people.