An Analysis of the Airbus-Boeing Dispute From the Perspective of the WTO Process

1. The aero-engine industry is the second largest in terms of turnover.
Major manufacturers are General Electric (US), Rolls Royce (UK),
Pratt & Whitney (US), Snecma (F), MTU (D), BMW-Rolls-Royce
(D), and the international consortia IAE and CFM.
2. For detailed statistical analysis for LCA industry: i) US view: Boeing
(2009) and US Department of Commerce (US-DOC, 2007); ii) EU
view: Eurostat (2006) and Airbus (2009).
3. The Boeing is a better example on this score. In the 1960s only 2%
of the content of Boeing’s 727 was non-American. By the mid-1990s
this had grown to 30% in the 777, large parts of which are made in
Japan. At least 70% of the latest Boeing model (the 787) will be built
outside America, mostly in Japan (Economist, 2005).
4. Currently modern planes sell for between $50 million and $250 million,
depending on whether they are 120-seaters or jumbos. Each
new model involves taking huge technical risks concerning safety
and efficiency. A new plane also requires enormous R&D spending
before the first test flight. The Airbus A380 cost around $12 billion
even before its first test flight. The new Boeing 787 will probably
cost at least $10 billion to develop (Economist, 2005).
5. Once production starts, the learning curve is steep. Each doubling of
production generally yields a cut of one-fifth in unit cost per plane.
Consequently, it takes production of about 500-600 aircraft before
a model starts to earn a profit. That would typically amount to around
ten years of production. The industry demand in good years is
around 700-800 planes but is spread across a wide range from shorthaul,
single-aisle models to long-range and jumbo aircraft (Economist,
2005). The combination of these factors explains why the industry
has a tendency towards a natural monopoly. It also explains
why a company such as Boeing, which has enjoyed over two-thirds
of the market since the launch of the 747 over 30 years ago, does not
rush to bring new models to market.
6. For detailed statistics about the LCA industry: i) US statistics:
(US-DOC, 2009) and Boeing (2009), and ii) EU statistics: Airbus
(2009).
7. For the full text, interpretation and application of the Agreement,
see WTO (2003) and WTO (2009a).
8. For the full text and a guide, see .
9. At this point, it is interesting that Pritchard et al. (2004) rightly predicted
that, due to the proposed Boeing 787 development and production
package proceeds, the U.S. might need to withdraw from
the 1992 Agreement (p.62).
10. The timing and substance of panel procedures in WTO dispute
cases is confidential. The parties therefore have not confirmed or
commented on the issuance of an interim report so far (as of the
end of September 2009). However, most news sources have reported
that the WTO handed US and EU officials its 1,000–page confidential
interim report of the US challenge to EU support for Airbus,
with the ruling going against Airbus (New York Times, 4 September
2009; Financial Times, 3 September 2009).
11. For the full text of the Agreement on Subsidies and Countervailing
Measures, see
and for its interpretation and application, see WTO (2009a).
12. For two excellent sources on the WTO DSU, see Mavroidis (2007)
and WTO (2009a).
13. The main cases in the WTO DSU on the aircraft industry (mainly
about subsidies) are Brazil-Aircraft (Complainant: Canada DS46),
Canada-Aircraft Credits and Guarantees (Complainant: Brazil
DS222), Canada-Aircraft (Complainant: Brazil DS70), Canada-
Measures Affecting the Export of Civilian Aircraft (Complainant:
Brazil DS71). For the summary of cases, see WTO (2009b).
END NOTES
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An Analysis of the Airbus-Boeing Dispute From the Perspective of the WTO Process
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