Boeing Vs Airbus: The Ongoing Wto Dispute

3643 words - 15 pages

Boeing vs Airbus: The Ongoing WTO DisputeIntroductionFor decades there has been a simmering dispute between the US and the EU over subsidies and other forms of aid for the world's two dominant makers of civil aircraft, Boeing and Airbus. Both sides accuse the other of distorting competition within the sector by receiving various forms of aid. Both Airbus and Boeing calculate that total subsidies running into the double digit billions have been unjustifiably pumped into the aircraft industry of their rival.In October 2004, the United States terminated the Agreement on Trade in Large Civil Aircraft, which it signed with the EU in 1992. At the same time, the U.S. government initiated WTO dispute settlement procedures regarding subsidies to the European aircraft industry. In response, the EU initiated similar WTO proceedings against the United States. Since then, all attempts to get the two parties back to the negotiating table have failed.This paper provides a brief commercial aircraft industry background, the market strategy of both Boeing and Airbus, and the current position of these firms on the market. It also describes WTO dispute between Airbus and Boeing and proposes potential solutions which could resolve this unique controversy.Aircraft Industry BackgroundThe US aircraft industry was traditionally one of the most successful industries of all time; hence, it shortly attracted a substantial amount of attention from policy makers. Because of its high fixed costs and the presence of the economies of scale and scope, there are extremely high entry barriers. Before European Airbus was introduced to the world market, there were three major aircraft manufacturers - Boeing, Lockheed, and McDonnell Douglas. Boeing was established in 1916 as a supplier of military airplanes by producing either fighter aircrafts or bombers for the Air Force. Shortly after WWII and the Korean War, Boeing expanded its production and started to supply commercial aircrafts to different airliners around the world By supplying airplanes to most nations, Boeing soon became the world's largest commercial aircraft manufacturer as well as the largest US exporter. On the other hand, Airbus Industrie which was established in 1970 as a direct competitor to Boeing and backed by French, German, British, and Spanish governments was rapidly gaining market share in the industry. With the help of the European government subsidies, Airbus shortly expanded its production and captured larger market shares and became Boeing's main competitor. The intense competition between those two firms lead to differentiated aircraft models and low prices for the airlines. By the mid 80s, Lockheed has virtually disappeared and McDonnell Douglas has merged with Boeing, leaving two major players in the aircraft industry: Airbus and Boeing.One of the main features of the industry is that it has extremely long investment cycles which make the industry very risky. Any aircraft manufacturer has to take into...


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