Settling the Boeing-Airbus dispute can deliver an early win for Biden's agenda

January 15, 2021 11:00 AM
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REUTERS/Terray Sylvester

President-elect Joseph Biden has repeatedly vowed to restore cooperation in transatlantic relations after President Donald Trump’s economic and political confrontations. It will not be easy in the wake of the European Union’s going forward with a bilateral investment treaty with China despite the Biden team’s expressed misgivings. But one way of rebuilding trust is within the grasp of European and American officials: settling the long-running Boeing-Airbus dispute over each side’s subsidies of its favored aircraft maker.

The European Commission has repeatedly stated its desire to settle the conflict and has been negotiating with the United States Trade Representative (USTR) even in the final stormy days of the Trump administration, hoping that the Biden administration will bring new impetus for a deal.

Both the United States and the European Union have won their World Trade Organization (WTO) cases against each other’s illegal subsidies to their national champions and have received the WTO’s blessing for retaliatory measures. In 2019 Washington imposed $7.5 billion of retaliatory tariffs on EU exports to the United States. In November 2020, the European Union did the same on $4 billion of US exports.[1] An obvious immediate win-win would be for both parties to suspend their tariffs against each other, or—since the United States won larger rights to retaliate at the WTO—tariffs worth at least $4 billion, or some amount between $4 billion and $7.5 billion. First stop retaliating, gain trust and improve trade flows, and then start negotiating a solution. High-level talks should then be initiated to solve the broader issue of large airplane subsidies between the two parties and ultimately globally in the WTO. Such an agreement would help in standing up to China, promoting a green economy, and generating jobs.

Large aircraft production is essentially a global duopoly between Boeing and Airbus. An accord would thus facilitate new global rules for airplane manufacturing subsidies generally, sending a signal to China, which is the most likely third global producer of large wide-body aircrafts under the direction of the Chinese state-owned Commercial Aircraft Corporation of China  (Comac). The degree to which Comac enjoys direct subsidies from the Chinese government is unknown, but they are likely to be lavish. In fact, Comac has so far produced only two relatively small aircrafts—the 90-seat ARJ21 and the 168-seat C919. The ARJ21 is generally considered inferior to competitors from Brazil’s Embraer and Canada’s Bombardier, and the soon-to-be-available-commercially C919 has not attracted orders from non-Chinese airlines. Comac is also working with Russian partners on the CR929, a wide-body long-range airplane seating up to 280 passengers.

Unfortunately, the Boeing-Airbus dispute has prevented approval of a new global airplane subsidies code at the WTO. Were the United States and European Union to bury their hatchet, they could also set back any unfair competition by Comac.

As for climate change, both the European Union and the Biden administration are committed to carbon neutrality by 2050, an ambitious goal that will require major technological breakthroughs in industry, especially the commercial aviation sector, which has never produced a low- or zero-carbon large commercial airplane. In other words, there is one—and only one—important role for government support for large aircraft manufacturers in the future, namely, to secure the environmental sustainability of commercial flights in a decarbonizing global economy. As with combustion engine cars, this objective will require tighter fuel efficiency standards for certification of jet-powered airplanes. Government subsidies to support development of zero-emission aircrafts are warranted, necessitating a tough new subsidies code that is restricted to that industry. No one knows what that might look like. Maybe the large planes of the future will fly on hydrogen or electric power, for example. For now long-term investments must be made in aircraft research and development to achieve breakthroughs by 2050. Negotiating an end to the Boeing-Airbus dispute must therefore by tied to a decarbonization policy and completed before the next United Nations Climate Change Conference (COP26) in November 2021.

With both Europe and the United States suffering from the pandemic-induced recessions, settling the Boeing-Airbus dispute could revive the aircraft industry, create jobs, and even revitalize tourism. All of these factors—China, decarbonization, and jobs—make it obvious that the two sides have no excuse for reaching agreement now.

Note

1. The United States, in retaliation to what it considered unfair EU estimates of the European Union’s $4 billion in tariffs on US goods on December 30, 2020, imposed further tariffs on select EU goods.

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Jacob Funk Kirkegaard Senior Research Staff

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