1. WTO Dispute Overview for Congressional Staff By: Karl Hennessee Senior Legal Counsel, Litigation & Regulatory Affairs, Airbus SAS

2. Popular Myth: “Subsidized Airbus” / “Unsubsidized Boeing” The Airbus Reality: Since 1992 and until the end of 2005, Airbus has repaid €5.85 billion, 40% more than received (€4.19 billion). Thus Airbus is a net ‘repayer’ not ‘borrower’ from EU governments. Airbus currently repays €3-400M per annum to European governments in addition to normal corporate taxes. By 2018, Airbus will have repaid more than €12 billion, and royalties will continue. All programs are largely funded from internal cash flow. The Boeing Reality: $10 bn from NASA programs: Composites, HSR, AST, HPCC, AvSP, QAT, Vehicle Systems, R&T Base, etc. $5 bn civil a/c benefit from DoD IR&D and DoD RDT&E $5 mn from DoC ATP $300+ mn civil a/c benefit from NASA/DOD patent waivers $1.5 mn from DoL training grants $2 bn from FSC TOTAL SUPPORT: $18 bn over 16 years or over $1 bn per annum ….. Not including massive US subsidies package for the B787 (additional at least USD 5.7 bn) just in US! TOTAL SINCE 1992: ca. $24 Billion

3. Legal Basis: Agreement on Subsidies and Countervailing Measures (ASCM) WTO 1994 Agreement on Subsidies and Countervailing Measures (“ASCM”) empowers WTO Panels to investigate and authorize complaining jurisdiction Elements of “Subsidy” under ASCM: a contribution … by a government or any public body within the territory of a Member which … confers a benefit ASCM Subsidies can be either: “Actionable” subsidies “injure domestic industry” (based on “volume” and “effects” of subsidies and extent to which they “nullify or impair” and cause “serious prejudice” “Prohibited” subsidies are those “contingent … in law or in fact” upon export of the product or “use of … local content”

4. Basic Factual Substance of Dispute DS 316 US accuses EC of Airbus subsidies: “Launch Aid” (Loans repaid with interest and royalties) Debt Forgiveness / Equity Infusions Infrastructure support European Investment Bank Loans RTD&E support from Member States and EC US seeks ruling that: Some launch aid / EIB loans are “prohibited export subsidies” Other support “injured” Boeing / caused “adverse effect” DS 353 EC accuses US of Boeing subsidies: NASA and DOD Research and Development subsidies Patent waivers and other technology transfers Cross-subsidisation from NASA and DOD contracts Local Revenue Bonds to Support Manufacturing and Research Training Grants & Administrative Facilitation WA 787 State tax & incentive package EC seeks ruling that: WA state aid is “prohibited export subsidy” Other support caused “adverse effect”

5. Boeing: “Launch Aid is a massive subsidy”…. But Wait! Launch Aid is a subsidy not available in the commercial market Fact: Many Airbus and Boeing suppliers work on precisely the same basis (shared risk) and similar terms to European government Loans. Fact: Boeing used the same system in the United States for the SST and continues to use the same system in Japan, as it has for over 20 years. Boeing Claim: Airbus has received $35, $100, $205 Billion in ‘benefit’ from Launch Aid x x Boeing Claim: Fact: Since the 1992 LCAA, Airbus is a net repayer, not a net borrower (40% more repaid than borrowed). Fact: Boeing has hired (and fired?) a series of economic “experts” to come up with its increasingly outlandish figures Fact: This figure is more than 8 times the capitalisation of EADS, or roughly 12 times the net assets of EADS, USD 18.4 billion. Fact: If the Boeing methodology were to be applied to the federal, state and local subsidies benefiting Boeing, the amount challenged by the EU would be not USD 24 billion, but rather USD 305 billion.

6. Boeing: “NASA contracts are purchases of services” …. But Wait! National Aeronautics and Space Act of 1958 (“Space Act”) Enumerated objectives: “[t]he improvement of the usefulness, performance, speed, safety, and efficiency of aeronautical and space vehicles” and “[t]he preservation of the United States preeminent position in aeronautics and space through research and technology development related to associated manufacturing processes.” Whether developed through research contracts or Space Act Agreements, Boeing generally receives all intellectual property rights to the developed technologies

7. Boeing: “NASA and DoD work do not provide benefits for civil aircraft”…. But Wait! “The NASA Advanced Subsonic Technology (AST) Composite Wing Program was established to demonstrate the feasibility (cost and weight) of fabricating composite primary wing structures for future commercial transport aircraft. It is understandable that the future composite wing box for commercial aircraft will be somewhat different from the AST composite wing, but it is believed that many of the obstacles have been evaluated in the AST program.” Michael Karal: “AST Composite Wing Program,” NASA CR 2001-210650, March 2001, p. 22. “[The ACT Program is aimed to] increase the competitiveness of the U.S. aeronautics industry by putting the commercial transport manufacturers in a position to expand the application of composites … to wings and fuselages.” NASA ACT Budget Estimates, FY 1997, SAT 4-21. “[DoD's Joint Strike Fighter (JSF) / CAI program] matur[ed] a number of fabrication processes.“ Butler: Composite Affordability Initiative, April 2000, p. 4.

8. “As a matter of discipline, Boeing applies lessons learned across the enterprise. Therefore, programs such as the … 7E7 Dreamliner are clearly benefiting from the new technologies and processes refined and validated on the X-32 [JSF] program.” Boeing Frontiers, “The Value of Lessons Learnt,” Volume 02, Issue 08, December 2003/January 2004.

9. Boeing: “Boeing is FSC Compliant and Receives no Benefit from Kansas Subsidies”…. But Wait! US Congressional action puts Boeing into compliance following numerous GATT and WTO condemnations of the FSC scheme as a prohibited export subsidy Fact: A 2006 Chief Counsel IRS Memorandum allows Boeing to take these prohibited tax breaks even after the end of 2006, the apparent end of all benefits under the FSC / successors. Fact: Boeing uses these benefits to lower its prices in competitions outside the US. Boeing Claim: It is a supplier, and not Boeing, that “benefits” from the Kansas State and Wichita Bonds Boeing Claim: Fact: Boeing negotiated, defined and put into place both Kansas bond schemes (funded by tax dollars) before selling its Wichita facility to Onex/Spirit in 2005. Fact: Boeing simultaneously sold its facility and executed long-term supply agreements that capture the benefits of these subsidies through 2024. Fact: Boeing still controls Wichita tooling and IP Fact: KDOC stills calls these bonds “Boeing Bonds”

10. Quo Vadis? Only one complainant ever lost a WTO case No legal “set-off” of retaliation Brazil / Canada aircraft disputes Already existing retaliation rights Boeing evasion of six successive GATT / WTO Rulings on FSC, ETI, AJCA …. US / EC Trade relationship remains the most important for either side Common ground on other topics in trade, security and others spheres Activist third parties - Cui Bono? …

11. B767 Japanese Launch- Aid Funding Share of Development Costs Japanese Share of Boeing Programs B777B787 Boeing and Japan

12. Any Questions?