"Super jumbo" problem: Boeing, Airbus, and the battle for the geopolitical future.

• Author: Fisher, Daniel I.
• Position: Commercial aircraft

ABSTRACT

The commercial aircraft industry is important to the United States for both economic and political reasons. Economically, commercial aviation has been the linchpin of the military-industrial complex and a positive actor on many other segments of U.S. industry. Politically, Boeing has ensured the lead of the United States in the aviation industry and aviation exports, which have a beneficial effect on the ability of the United States to export geopolitical power.

Cognizant of this salutary effect of a successful aviation industry on the United States, Europe created and financed Airbus as a direct competitor to Boeing, hoping it would play the same role for the European Union that Boeing has played for the United States. Recent events, especially the proposed A380 super-jumbo jet and the advancing development of the European Army, place Airbus at the crossroads of European technological advance and military integration, and make Airbus' success vital to that of the "European Project."

Though global trade agreements such as GATT and the WTO have attempted to deal with this sensitive political and economic issue, they have been unable to do so successfully. This has happened for a number of reasons, ranging from the weakness of the dispute resolution structures embedded in the trade agreements to the intransigence of the principles involved. However, in dealing with Airbus' attempt to steal Boeing's market share and serve as a cohesive force for European integration, U.S. policy makers should not, as in the past, throw up their hands at the collective inaction of trade bodies and accept the status quo. Rather, they should seek heterodoxical solutions, especially in the diplomatic sphere, to deal with this pressing and potentially paradigm-shifting issue.

1. INTRODUCTION

   Civil aviation is the largest export industry in the United States, and the Boeing Corporation, which controls nearly one hundred percent of the U.S. civil aviation manufacturing industry, is the largest exporting manufacturer in the United States and the world. (1) Boeing's impact on the U.S. economy, while possibly limited in purely macroeconomic terms by its status as one large multinational corporation among many, is immense. It is also disproportionate when considered in industrial, strategic, and geopolitical terms. (2) In a time of increasing globalization, and the concomitant dilution and diminution of national symbols, Boeing is one of the world's most recognizable and valuable brands. (3) In a time of increasing economic fragmentation, Boeing's presence as a dominant force in the U.S. industrial market enables various other actors in the U.S. economy. (4) In a time of consolidation of military contractors, (5) Boeing has emerged as one of perhaps three or four military-industrial market participants capable of meeting the needs of the United States military across a variety of product lines. (6)

   Airbus occupies a similar economic and geopolitical space in the European economy. (7) Unlike Boeing, however, which came to its market prominence and industrial influence through the winnowing influences of U.S.-style capitalism, (8) Airbus was designed by European governments to play such a dominant role. As the Office of Technology Assessment has acknowledged:

   European planners value aircraft manufacture explicitly for the employment it creates. An Airbus official explained that the main reason the collaboration works is that by creating jobs in an export industry, Airbus enables the member countries to capture jobs from other parts of the world.... With government commitment to full employment, policymakers view the thousands of jobs Airbus creates in [European Union-member countries] as well worth the costs of the supports provided. (9) Whether looked at through the lens of hard power, soft power, or economic power, (10) the success and maintenance of Boeing's manufacturing capabilities and market success is of vital interest to U.S. national security, just as Europe has recognized the importance of Airbus in protecting the security of Europe. The corollary is also true: those outside forces that threaten Boeing, especially by utilizing extra-market methods of protection with which Boeing cannot legally or practically compete, (11) pose a danger to U.S. national security. (12)

   Past subsidies offered to Airbus Industrie by various EU Member States, and especially the subsidies currently being contemplated to assist in the development of the A380 super-jumbo jet, are an example of such dangerous forces. These European actions require that the United States attempt to halt the subsidies through the various international dispute resolution systems available. If the available mechanisms seem unable to handle a dispute of this potential magnitude, extra-judicial measures, such as diplomacy, must be used.

   Airbus' actions seem likely to necessitate a complete reformulation of U.S. national security with respect to its industrial base and relations with the European Union. This is especially true in light of other developments, such as the creation of the European Army and increasingly divergent foreign policy goals of the European Union and United States in the post-Cold War world. Some political figures and economists argue that the economies of the United States and Europe are so intertwined that substantial policy shifts might have potentially destabilizing second-order effects. (13) Nevertheless, the recent policy of Airbus and the European Union has been to rely more on European suppliers and sub-contractors and to use Airbus to build the European aircraft industry, and to further aid the integration of Europe. (14) This seems likely to continue as Europe asserts its emerging power and independence. (15)

   When combined with the growing popularity of the proposed European Army, (16) the potential gains in European technological capabilities, especially in the aerospace sector, pose a potential threat to U.S. national security on several levels. An increase in European technological power could lead to a Europe whose security goals differ from those of the United States, with the ability to implement its goals through its new technological and military power. Points of dispute would not merely be specific instances such as intervention in the Balkans, but rather conflicting worldviews between the two blocs, with major flash points coming in such places as formerly Soviet-controlled space and the Middle East. (17) In the post-World War II world, nearly all conflicts between European and U.S. foreign policy ideas have been resolved in favor of the United States. (18) Europe would have less incentive to subordinate its goals to those of the United States in a world in which European and U.S. power was close to parity and in which Europe had achieved a significant degree of technological and military independence.

   In economic terms, the United States and Europe are close to parity already. The gross domestic product (GDP) of the European Union was approximately $7.8 trillion in 2000, as compared to $10 trillion in the United States. (19) The population of the European Union has already outpaced that of the United States. (20) The proposed accession to the European Union of emerging Central and Eastern European countries, such as Poland and the Czech Republic, will further close the gap. (21)

   The possibility of confrontation between Europe and the United States, two powerful blocs with different sources of strength and geopolitical goals, is a classic precursor to global conflict on an economic and systemic, if not a military, level. (22) The potential danger inherent in such a conflict mandates that extreme care be given to develop a solution, and existing trade remedy processes heretofore used may be insufficient.

   Part II of this Note focuses on the history of civil aircraft subsidies under both the General Agreement on Tariffs and Trade (GATT) and EU-U.S. bilateral agreements, with particular emphasis on the 1992 Civil Aircraft Agreement. Part III considers the creation of the A380 super-jumbo jet, and discusses U.S. grievances regarding its development under the current GATT and bilateral agreement structure. Part IV discusses both traditional and non-traditional dispute settlement mechanisms in international trade disputes, and traces the origin of these processes both in the GATT and its successor, the World Trade Organization (WTO). It addresses the problems inherent in both approaches, as well as reforms that have improved the effectiveness of these settlement mechanisms.

   Finally, Part V argues that the dispute over the A380 may have severe and long lasting ramifications. Current dispute resolution mechanisms may be incapable, both by design and practice, of solving the A380 dispute in light of its gravity. An extra-procedural process is needed; the possible conflict is too serious to be handled through normal trade-legal channels, and the problem should be addressed through diplomatic means.

2. THE REGULATION OF AIRCRAFT SUBSIDIES

   Several agreements govern aircraft subsidies currently used by the European Union. This section examines the original GATT, and then traces its development in the area of aircraft subsidies in the Tokyo and Uruguay Rounds in order to provide the background for examining the development of the A380.

   1. The Original GATT

      The original GATT was created in 1947, (23) in an attempt to establish a workable framework for international trade and to avoid the spiraling tariffs widely thought to have contributed to the Great Depression. (24) The 1947 GATT did not include any limits on subsidies; (25) it merely mandated that subsidies be reported, and acknowledged their role in contributing to inefficiencies in international trade. (26) Subsequent rounds of the GATT, while addressing general subsidies in various forms, failed to specifically address civil aircraft subsidies. (27) By the start of the Tokyo...