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Abstract

Competition between Airbus and Boeing in the large civil aircraft industry grew contentious as Airbus began to overtake Boeing in its long-held position as the world‘s leading producer of large civil aircraft. Airbus and Boeing had also each embarked on multi-billion dollar investments into the development of new aircraft, further raising the stakes. The United States and European Communities in turn increasingly scrutinized the subsidies provided by their counterpart to its respective aircraft manufacturer. This conflict over subsidies, which had persisted between the United States and European Communities since the inception of Airbus in 1970, reached a head in 2004 when the United States initiated the dispute resolution process of the World Trade Organization over subsidies provided by the European Communities to Airbus. The European Communities responded by filing a parallel complaint regarding subsidies provided to Boeing by the United States.

After over eight years, the dispute is reaching the conclusion of the WTO dispute resolution process, but whether or how the process will resolve the dispute is still very much in question. More important, though, is how the instant dispute will affect the long-term question of the permissibility of subsidies in the large civil aircraft market. The history of the dispute suggests that the parties will negotiate an agreement addressing their short-term interests but setting the stage for another conflict down the road. Instead, the parties should use the information and bargaining positions provided through the WTO process to negotiate a comprehensive agreement eliminating subsidies to the maximum extent possible. This should protect the parties‘ immediate interests, avoid the prospect of a trade war, further free trade generally, and provide a framework applicable to the large civil aircraft industry as a whole, including its emerging participants.

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