Krishang Arora

SAP ID- 74022020046

Subject- IBEXIM

Case Study: Government Intervention at Airbus and Boeing

1. Where do you stand? Do you think EU subsidies and soft Loans to Airbus are
fair? Why or why not? What advantages does Airbus gain from free financial
support from the ELI governments? Are complaints about ELI subsidies fair in light
of Europe's history of democratic socialism?

Answer 1.

1. The case study reveals that the European government has

successfully defended the financial assistance for Airbus when we take into
account the rules for the issue of forgiving loans as well as the effects of
the establishment of Airbus on the European Economy through
democratic socialism. It is also possible to defend the fairness of the loans
and subsidies for the aircraft given that "the subsidies were actionable
under the World Trade Organization's Agreement on Subsidies
and Countervailing Measures" (Airbus qualified as subsidies under the
WTO Agreement on Subsidies and Countervailing Measures).
2. Additionally, when the Airbus was founded, it not only benefited from European
help to become one of the best airlines in the world, but it also had a big
influence on the economy of the area as a whole. Government support
enabled Airbus introduce the A380, A350, and several other cutting-edge
aircraft, which contributed to the company's dominance of the global aviation
industry. With the help of the government, Airbus swiftly grew, rose to the top
of the airline sector, and in 1992, it held about one-third of the global market
for commercial aircraft.
3. According to the democratic socialism of the European nations, each country in
the region will play a part in the political and economic growth of the region. As
a result, the airline alliance produced jobs for some 53,000 people, developed
new, practical technology, and—most importantly—attracted a sizeable amount
of foreign investment to Europe, which had a substantial effect on the region's
economy.
2. Do you believe U.S. military contracts with Boeing amount to subsidies?
Have these types of payments provided Boeing with unfair advantages?
Justify your answer.
Answer 2.

∙ Yes, I believe the U.S. military contracts with Boeing amount to subsidies as they
are paid via tax dollars.
∙ These types of payments do provide Boeing with unfair advantages.
∙ As mentioned in the case, the U.S. government gave Boeing more than $23 billion
in indirect government subsidies by means of research and development
funding and other indirect support from the Pentagon and NASA, the nation's
space agency.
∙ Boeing is at liberty to use the knowledge acquired from such projects to
produce civilian aircraft
∙ The government has provided the firm with tax breaks, infrastructure support,
and other incentives totalling billions of dollars.
∙ The new Boeing 787 Dreamliner is built in an alliance with the heavy-industry
divisions of Japanese MNEs like Mitsubishi, Kawasaki, and Fuji. They have
provided more than S 1.5 billion in soft loans, repayable only if the aircraft is
a commercial success.
∙ All these are the types of payments and subsidies that Boeing has received
from the US Government and hence Boeing gets an unfair advantage by
saving many dollars through strategic alliances and with business houses
throughout the world.

3. Assuming that Airbus cannot compete without subsidies and loans, is it likely
that the EU will discontinue its financial support of Airbus? Is it in the EU's
interests to continue supporting Airbus? Justify your answer.

Answer 3.

EU will discontinue subsidies and loans for a particular firm as it would be ruled
illegal again by WTO. Rather it will continue to subsidize the industry and give soft
loans for the entire industry thereby indirectly financing and helping Airbus.

Reasons for the need for financial aid as Boeing has unfair competitive
advantages.

The U.S. government gave Boeing more than $23 billion in indirect government
subsidies by means of R&D funding and other indirect support from the Pentagon
and NASA, the nation's space agency. And Boeing was at liberty to use the
knowledge acquired from such projects to produce civilian aircraft. This created an
unfair advantage and resulted in an increased trade barrier.
Boeing’s primary manufacturing and assembly location had provided the firm with
tax breaks and other incentives totaling billions of dollars. This reduced their tax
liability and led to the emergence of another unfair advantage in favor of Boeing.

Boeing’s relations with its Japanese business partners. The new Boeing 787
Dreamliner is built in an alliance with the heavy-industry divisions of Japanese MNEs
like Mitsubishi, Kawasaki, and Fuji. They have provided more than S 1.5 billion in soft
loans, repayable only if the aircraft is a commercial-success.

The United States government had indirectly subsidized Boeing operations

through massive defense contracts. This resulted in an unfair advantage as
they entered in revenue generation stage without much effort or any
competition creating a monopolistic effect leading to anti-competition and
increasing trade barriers to entering this line of business.

Reasons for EU's interests to continue supporting Airbus

Airbus's R&D activities result in new technologies of considerable value to the EU.
This leads to the creation of more patents and Intellectual property and leading
more IPRs. Hence, increasing the dominant position.
Airbus provides jobs to some 53,000 skilled and semiskilled Europeans. Since led to
the creation of jobs and employment. It improves the entire ecosystem and value
chain and thereby benefiting the entire economy.
Its value-chain activities attract massive amounts of capital into Europe. Value chain
refers to procurement, production, supply chain, logistics, sales, marketing, and
after-sales service. These key value chain activities attract enormous capital inflow.
This attracts FDIs. This strengthens the Euro. Thereby helping the EU position itself
better in the world trade platform.
Finally, Airbus generates enormous tax revenues. Airbus is a company set up in
Europe. It has to pay taxes to the EU countries predominantly. So, if Airbus is
profitable, it leads to tax inflow in EU countries’ treasury.