Term Paper on "Boeing and Airbus"

Term Paper 5 pages (1362 words) Sources: 5

[EXCERPT] . . . .

Boeing Airbus Subsidies

EU Subsidies and Soft Loans to Airbus

The EU subsidies to Airbus are not fair, especially not in a modern global economy premised on the principle of free trade and certainly not when undertaken by a group of countries with membership in the World Trade Organization, which prohibits such subsidies. The reason that the WTO prohibits these sorts of government subsidies to private industry is because they distort trade. That is, they tamper with the normal functioning of the market for goods and services, which is here the extremely strategic and high-stakes market for aircraft. They allow one competitor, Airbus, to make its goods artificially affordable to aircraft customers, undercutting truly private firms like Boeing and gaining an unfair advantage in the market.

Europe's history of democratic socialism might allow the EU to frame certain instances of government intervention, such as the nationalization of certain private industries, as traditional features of their political economy. However, the government intervention called for under democratic socialism was directed at distinctly domestic aims such as the inclusion of workers in the management of the economy and the redistribution of wealth.

The government intervention undertaken by the EU here, composed of economic subsidies to a very strategic, export-oriented industry, has little to do with the values or aims of democratic socialism. The subsidies are clearly provided in order to help an infant industry gain an unfair advantage over international competitors which do not receive such government assistance. The subsidies, in fact, are more reminiscent of the state socialism practiced in the former Soviet Union or the mercantilist industrial policies used by Japan, Taiwan, and South Korea in the development of their electronics industries.

US Military Contracts with Boeing: Subsidies or Legitimate Transactions

Military defense contracts between the U.S. government and Boeing do not amount to subsidies as the EU claims (claiming over $23 billion in indirect subsidies) because they involve the government, in return for those funds, receiving a very valuable good or service from Boeing, military aircraft and technology.

The U.S. government is not just giving money to Boeing in order to ensure that it is successful. It provides Boeing with money in exchange for highly sophisticated and expensive-to-produce military technology.

Even the R&D funding given to Boeing is a genuine exchange of benefits between Boeing and the U.S. Department of Defense acting as a market participant. As the nation's leading producer of military aircraft since World War I, Boeing occupies a critical place in the U.S.'s defense establishment. There are many projects which the U.S. defense department must rely on Boeing for, as there are no other private firms or government departments qualified to undertake such projects.

The Future of the European Union's Financial Support for Airbus

It is unlikely that the EU will stop supporting Airbus because there are currently not enough consequences that would arise out of their continued support, even if such support is deemed unfair trade practice by the WTO. The WTO, though a fully functional and respected trade governance body, is very limited in the type of punishments that it can impose on trade offenders and in the type of remedies that it can offer to victims of trade distortion.

In the event that a WTO panel finds a violation of international trade law by one of the EU countries, the WTO could authorize the United States to impose countervailing duties on certain goods entering the U.S. from that country. Such countervailing duties, an act of trade distortion in itself, were commonplace between feuding trade partners before the WTO was created. However, the authorization of the WTO makes such trade distorting measures compliant with free trade practice.

It is certainly in the EU's interest to keep supporting Airbus with financial subsidies because the aircraft industry is a highly strategic industry not only for Europe, but for any industrialized nation. A sophisticated aircraft industry crucial for military power because of the dominance of air power in modern warfare, a situation which is likely to persist into the foreseeable future.

Also, the aircraft industry is perhaps the pinnacle… READ MORE

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