Boeing and Airbus are the dominant players in the global market for large commercial jet aircraft of 100 seats or more. The two companies are locked in a relentless battle for market share, and for decades have been accusing each other of benefiting from government subsidies. In its early years, Airbus received 100 percent of the funds it needed to develop new aircraft from the governments of four European countries where Airbus’ operations were based: Germany, France, Spain, and the United Kingdom. These funds were provided in the form of loans at below-market interest rates. For its part, Airbus claimed that Boeing has long been the recipient of R&D grants from the U.S. Department of Defense and NASA, which amount to indirect subsidies. The two companies reached an agreement on phasing out subsidies back in 1992, but Boeing walked away from that deal in 2004, claiming that Airbus was still benefiting from billions in illegal development subsidies. In 2006, the U.S. government filed a case with the World Trade Organization (WTO) alleging that Airbus had received $25 billion in illegal subsidies, mostly in the form of launch aid for developing new aircraft. In 2010, the WTO ruled that Airbus had benefited from $18 billion in illegal government subsidies, including $15 billion in launch aid. The WTO gave the European governments until December 2011 to remove the harmful effects of the subsidies.
In September 2016, the WTO issued another ruling criticizing the Europeans for failing to comply with its 2010 ruling and, moreover, for giving another $5 billion to Airbus in the form of noncommercial loans to help develop its latest aircraft, the A350. In this latest ruling, the WTO stated that “it is apparent that the A350 could not have been launched and brought to market in the absence of launch aid.”3 In total, the WTO calculated that Boeing had lost 104 wide-bodied jet orders and 271 narrow-bodied jet orders as a result of Airbus launch subsidies. This latest ruling opens the door for the United States to apply retaliatory trade sanctions against noncompliant European governments.
However, it seems unlikely that the United States will apply retaliatory sanctions any time soon. Part of the reason is the the United States itself has been countersued by the EU through the WTO for providing illegal subsidies to Boeing.
In November 2016, the WTO ruled that Boeing would receive around $5.7 billion in illegal tax breaks from Washington State, where Boeing’s main production facilities are located. The state of Washington had promised to give Boeing these tax breaks between 2020 and 2040 on the condition that the company kept the production of the wings for the widebodied 777X aircraft in the state. According to Airbus, these tax breaks give the 777X an unfair advantage against its rival aircraft, an assessment that the WTO seems to agree with.

Questions
1. Are there circumstances under which the subsidies that Airbus received in its early years might be justified?
2. Do you think that Boeing benefited from subsidies when it developed the 707 back in the 1960s? If they did, could they be justified?
3. Boeing and Airbus have allegedly been receiving subsidies for decades. How might these ongoing subsidies distort the market for large commercial jet aircraft?
4. Who benefits from government subsidies to Boeing and Airbus? Who loses?
5. Under what circumstances, if any, should national governments subsidize the development of new technology?
6. What would be the optimal outcome (in terms of global economic welfare) of the ongoing trade dispute between the EU and the U.S. over subsidies in the market for large commercial jet aircraft? How might such an agreement be enforced?