The World Trade Organisation (WTO) has ruled that European governments’ practice of giving loans to Airbus did not contravene WTO rules but that the interest rates on some individual loans were illegally low. The previously confidential findings, made public on 30 June, relate to the United States’ complaint that the European governments subsidised the continent’s aircraft giant Airbus.

Both sides will be able to claim some success from the 1,000-page report as the WTO backed part of the US case but ruled against other aspects. The main finding in the Europeans’ favour was that the mechanism of repayable state loans is legal. On the other hand, the WTO ruled that interest rates offered by the European governments to Airbus were so far below market rates as to be illegal.

Europe will be particularly relieved to see the principle of state loans backed in the ruling. Airbus will also be celebrating this part of the report as it has heavily relied on the state loans as a source of funding during the development of the A350 long-distance Airbus carrier.

The United States, in 2004, accused the European governments of giving Airbus illegal subsidies worth almost €140 billion. The accusation sparked a complaint in return by the Europeans against alleged US subsidies to Airbus’ American rival manufacturer Boeing. The WTO’s preliminary ruling on that counter claim is expected to be released to both sides, though not made public, on 16 July.

“This final report needs to be read together with the forthcoming interim report on subsidies provided in the US to Boeing. Only then will we have a full and more balanced picture of this dispute,” said EU Trade Commissioner Karel de Gucht. “The EU remains committed to a negotiated outcome to the dispute with no preconditions on either side,” he added.

The mainstay of the US case was that repayable launch investment (RLI), referred to in the US as ‘launch aid’, constituted an illegal subsidy. It gave 21 examples of this, of which seven were accusations of ‘prohibited subsidy’ and the rest were alleged cases of the less serious category of ‘actionable subsidy’. Of the seven cases the US said were prohibited subsidies, and would therefore require immediate remedial action, three were upheld and four were rejected. Commission sources involved in the case were keen to point out that the panel, however, rejected four of them, namely French support for the A380 and A340 and Spanish support for the A350. In those cases, they were classified as actionable subsidies, meaning financial remedies may have to be made, after an assessment of any material damage and an appeals procedure. This process means that although there can be punitive measures, there may eventually be little or no action required if no damage can be proven to Boeing.

EU sources told Europoliticsthey were particularly satisfied to see that in most cases the report found no evidence of ‘material damage’ to Boeing or the domestic aircraft industry from the subsidies that did exist for Airbus. As the subsidy element of the loans was limited to the level of the interest rate, they explained, this represented a limited financial impact in the market.

The US, however, has considerable room for declaring success itself. In addition to the three prohibited subsidies, the US also won the backing of the WTO on the research and development grants and the research and development framework, which it classified as illegal subsidies. The WTO also ruled in favour of the US’ accusation that specific subsidies had been established in the form of infrastructure development for Airbus facilities in Toulouse and Hamburg. Some road improvements near the Toulouse site were found to be acceptable.

Twelve European Investment Bank loans granted to Airbus, also part of the US case, were found to be ‘non-specific’ to Airbus and therefore part of a competitive market practice.

The next step in the process will be to start the appeals procedure, where the Commission is likely to focus on the assessment of the extent to which the interest rates were unfairly low and challenge the inclusion of historical data, including from the 1960s, which they argue is no longer relevant. The WTO will be required to decide on measures to be taken to remedy any damages.