The Lawless European Union

George C. Landrith

The European Union (EU) recently made the news when a number of the member nations rejected the EU Constitution in public referenda. While this was big news, far more important to Americans is the fact that the EU regularly uses its power and money to skew economic markets and give its favored corporate giants huge illegal subsidies to help them defeat American companies in the global marketplace.

To see just one example of how the EU fights against real competition in the global marketplace, it is instructive to look at the competition for commercial jetliners between Airbus and Boeing. Airbus has received $15 billion in subsidies with the express purpose of giving Airbus a leg up in its competition with Boeing. In 2000, French Prime Minister Lionel Jospin, said, “We will give Airbus the means (i.e. money) to win the battle against Boeing.” In 2003, Airbus had a larger market share than Boeing. In other words, the French Prime Minister made good on his promise. Access to large sums of taxpayer-provided cash from the EU has allowed Airbus to quickly roll out a record-breaking succession of new aircraft.

Now that Boeing has developed a new cutting-edge airliner – the 787, known as the Dreamliner – the EU has promised Airbus more subsidies to help them quickly roll out a new plane to compete with the stunning Dreamliner. This promised aid will be in the form of launch aid, grants, infusions of cash, and interest-free loans that must be repaid only if the plane becomes commercially profitable. Boeing developed its Dreamliner, the old fashioned way – with its own money and financing for the development and manufacture of the new airliner. Airbus intends to develop its competing airliner with EU financial aid. This clearly violates international law and flies in the face of a number of free trade agreements.

How can Boeing compete when Airbus gets billions in financial support from more than two-dozen European nations that comprise the EU? It is like asking an American Olympic runner to run 100 meters and the allowing the Olympic competitors from France and Germany to have a 30-meter head start. Such an unfair competition will likely produce a lot of French and German Olympic medals. But that wouldn’t mean they are the best competitors – only that they cheated and were given the easiest path to victory.

Fortunately, Boeing has competed quite well given the circumstances. Its Dreamliner is an amazing aircraft. It is more comfortable for passengers, can be run more efficiently and profitably for airlines, and was designed from the ground up to be safer, more durable, and more flexible. However, in the long run, if we allow Airbus to continue cheating in the global market, we shouldn’t be surprised if we get the short end of the stick. That is the entire purpose of their cheating – to gain an unfair advantage and, as the French Prime Minister admitted, make sure Airbus wins “the battle against Boeing.”

Under international law, subsidies such as the ones the EU gives to Airbus are illegal and violate international trade agreements. The White House has filed a case with the World Trade Organization (WTO), which is charged with deciding such trade disputes.

Notwithstanding the obvious illegality, the EU defends its subsidies to Airbus by falsely arguing that Boeing gets aid from the U.S. government because of its defense contracts. However, those contracts are competitively bid and Boeing receives only a fair market payment for producing products and services that meets the requirements of the contract. There is no subsidy. When you buy a Big Mac at McDonalds for $2, is that a subsidy? Of course not – it’s just the fair market price of the sandwich. But what really reveals the EU’s argument as a lie is that in 2003 Airbus and its parent companies had more defense-related revenues than Boeing.

The EU also defends its illegal actions by arguing that Boeing receives tax breaks from states where it operates. However, jurisdictions all over the world grant tax incentives to large employers who locate operations in their jurisdiction. Those economic development strategies are offered to any large employer – even foreign companies. Simply stated, these incentives are not exclusively offered to Boeing. In fact, those same breaks are available to Airbus. A number of Airbus’s exclusive suppliers receive the exact same incentives. In contrast, the $15 billion of taxpayer-provided subsidies given to Airbus were not available to Boeing or other competitors. It was a handout available only to Airbus paid by the 25 member nations of the EU with the express purpose of helping them “win the battle with Boeing.”

The Administration must press this case hard and require the EU to compete fairly in the world marketplace. The EU has a track record of cheating in the world marketplace and using government regulations to benefit its companies and hamper American companies. Airbus is only one of the more obvious abuses. The Administration must continue to make it clear to the EU that free trade and fair competition are two-way streets.

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Mr. Landrith is a graduate of the University of Virginia School of Law, where he was Business Editor of the Virginia Journal of Law and Politics. He had a successful law practice in business and litigation. In 1994 and 1996, Mr. Landrith was a candidate for the U.S. House of Representatives from Virginia's Fifth Congressional District. He served on the Albemarle County School Board. Mr. Landrith is an adjunct professor at the George Mason School of Law. He is recognized as an authority on constitutional law and jurisprudence, federalism, global warming, and property rights.

george@ff.org