Friday, September 4, 2009

However the World Trade Organization rules Friday on a trade dispute between Boeing and Airbus, its decision could help slowly loosen the grip the two plane-makers have held on the lucrative market for commercial planes.

On the surface, the WTO will decide a 5-year-old U.S. complaint that European governments unfairly financed Airbus’ climb to the No. 1 position. But the ruling may also signal how much other nations should be allowed to subsidize their industries. China’s aviation industry, for example, wants to compete with Boeing and Airbus for a share of the jetliner market, expected to be worth $3.2 trillion over the next 20 years.

Boeing is looking to the WTO to set guidelines for how the long-term competition over planes will proceed.

“We are hoping these rules will give clear guidance to all companies that want to develop large civil aircraft,” said Ted Austell, a vice president for Boeing.

Chicago-based Boeing and Airbus, a subsidiary of the European Aeronautic Defence and Space Co. based in France, have been pillars in the industrial economies of the United States and Europe. Boeing long held the No. 1 industry position. But Airbus surpassed it earlier this decade.

Both enjoy a healthy dose of government aid, which is the crux of the trade dispute. Boeing blames European subsidies to Airbus for what it said was a 20 percent drop in market share from 1999 to 2003. Boeing and the United States estimate Airbus has received, in all, government help worth $205 billion.

The WTO decision isn’t expected to have much immediate effect on Airbus and Boeing. A separate WTO ruling, on a claim against the United States from the 27-nation European Union, is expected in six months. Current projects - jets such as Boeing’s 787 and Airbus’ A350 - will remain on track.

But in the longer term, competition could escalate from countries eager to aid their growing aircraft-makers. China, India and Brazil are competing in the market for smaller regional jets and aspire to cut more deeply into the Boeing-Airbus dominance over big passenger planes.

If the WTO gives governments in the United States and Europe some leeway to aid their aerospace industries, it could lead other nations to do the same. China already has been accused of illegally subsidizing manufacturing sectors that it hopes to protect, such as steel producers.

“The Chinese are doing it wantonly today,” said Robert Scott, senior international economist at the Economic Policy Institute in Washington.

Analysts say Beijing’s tendency to erect trade barriers would likely be extended to its aviation industry.

China announced plans last year to build jumbo jets under a partnership between two plane-makers that were split off from state-owned China Aviation Industry Corp. in 1999. It hopes to unveil a new engine for the planes by 2016. Analysts don’t expect such projects to challenge Airbus and Boeing for several decades. But Beijing wants a domestic aviation industry to lessen its reliance on those two plane-makers.

Boosted by state subsidies, the Brazilian company Embraer and Canada’s Bombardier already have cut into the market for smaller regional jets designed for shorter flights. Over the past decade, Brazil and Canada have defended themselves in WTO disputes over government aid for their industries.

Boeing especially worries about European aid for the Airbus A350 XWB. The A350 is a midsize jet that will rival Boeing’s 787 plane, a project that’s been beset by delays and problems. Britain, France and Germany have already pledged funding of more than $4 billion for the A350. The overall development cost for Airbus is expected to be nearly $16 billion.

Airbus argues that Boeing’s subsidy estimate is inflated. European officials counter that U.S. officials have improperly funneled aid to Boeing’s commercial division through the company’s defense unit.

But it may be in the best interest for European governments and the United States to agree on how to use state aid. Analysts said this could help them set clearer guidelines on state subsidies, allowing them to fend off future challenges from upstart rivals.

“The fundamental goal here, which is shared by Europe and the U.S., is to call a halt to the subsidy race so that the newcomers get nipped in the bud,” said C. Fred Bergsten, director of the Petersen Institute for International Economics in Washington.

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