Tuesday, April 6, 2010


The World Trade Organization has now delivered the final ruling in the U.S. case brought in 2004 charging that the European Union provided illegal subsidies of up to 139 million euros to Airbus to develop its commercial aircraft.

Though both sides claimed victory in the interim ruling last September, the substance favored Boeing’s claims, particularly as regards “launch aid” to assist Airbus in development of new models, including the A380 superjumbo and models from the A300 to the A340.

In another development, when Airbus subsidiary EADS recently pulled out of the competition for the Air Force’s next generation of refueling tankers, many influential voices in Europe were quick to raise an accusation of protectionism, even though the withdrawal was solely at EADS’ discretion and even though the WTO ruled that Airbus planes were built using illegal subsidies. Are the two issues linked in some way?

Most basically, it seems odd to cry protectionism here in the face of these subsidy findings, especially when an open competition was held that EADS originally won. In response to criticism that the original process was not fully transparent, the revised specifications for the rebidding process were a model of transparency; some even suggested that the revised specifications favored Airbus.

As Business Week reported last fall, “The wish list set out by the Air Force plays to the strengths of the Airbus-Northrop consortium” in areas such as the ability to operate on shorter runways while carrying heavier loads of fuel.

One may therefore reject with confidence the charge of protectionism in the tanker decision; any different position would be to reward illegal subsidies. There are other issues for which the protectionist label fits better: for instance, the recent discussion in Europe about regulation of financial services, including hedge funds and venture capital, with new rules that might discriminate against foreign investors, or some of the “Buy American” clauses in the U.S. stimulus legislation.

Issues such as these should be discussed and resolved on an ongoing basis between the parties, rather than being fought through the media. One need only read briefly the story of the difficulties with the proposed Lehman-Barclays merger on that fateful weekend in September 2008 and the controversy over Lehman’s “Repo 105” transactions to realize that these types of bilateral discussions are absolutely critical. The alternative is that issues get stovepiped, instead of treated in a broader economic context, and get subjected to litigation in which no one wins. Treasury Secretary Timothy F. Geithner’s remarks last week now makes it look like financial services reform will become an increasingly serious dispute between the two jurisdictions.

Not every issue should be resolved through an expensive, time-consuming process of international litigation. Fortunately, there is a better way, particularly when the parties involved are friends who should seek to resolve disputes quickly and fairly according to predictable rules.

One such effort was the Transatlantic Economic Council, designed to bring U.S. and EU government and business leaders together to address common challenges, find common regulatory ground where possible, and discuss the inevitable tensions in the economic relationship such as the constant disputes between Boeing and Airbus. The TEC has lapsed over the past year, and its absence is sorely felt.

It’s time for the U.S. and EU to restore the TEC as a venue for bringing together the public and private sectors of both economies to discuss common issues in an atmosphere of good will, including investment, regulation and competition in a world where the EU and U.S. face similar challenges to open trade. The TEC cannot solve every problem alone, but in can provide a forum for regulators to work together and to cool disputes before they threaten the workings of the world’s most important economic relationship and the wider global economy.

Despite the recent ruling from the WTO panel, the aircraft litigation is far from over, with Airbus’ counterclaims to be decided next, followed by likely appeals in both cases. It’s tremendous work for lawyers and translators, though it doesn’t help the cause of either commercial aircraft sales or free trade.

A European, Charles Dickens, summed up this type of predicament well in describing the case of Jarndyce and Jarndyce in his novel “Bleak House.” As Dickens wrote, “This scarecrow of a suit has, in course of time, become so complicated that no man alive knows what it means.” Money that could have been spent for productive uses is instead spent for litigation until the funds (and the parties) are exhausted. With the stakes so high, we must instead take that better way.

C. Boyden Gray served as U.S. Ambassador to the European Union.

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