As the U.S. and EU continue to battle over whether billions of dollars in aircraft subsidies violate WTO rules, the NY Times has a strange article that -- perhaps time travelling back to the 1980s -- seems to think it has identified the real culprit: Japan! OK, that may be overstating the point of the article, but nevertheless, something seems a little off in the piece.
The basic claim seems to be that the Japanese government has conspired with Boeing, so that Boeing uses Japanese suppliers for parts such as batteries (which receive government subsidies) and, in compensation for Boeing favoring Japan, Japanese airlines buy mostly Boeing planes.
This may all be true. Governments certainly do a lot of subsidizing and other intervention in the aircraft industry. In addition to the U.S. and EU, Canada and Brazil have both been found guilty of this, and many people expect China to follow the same route. It would not come as a shock if Japan were doing similar things in the aircraft parts business.
Nonetheless, some of the allegations against Japan seem a bit off. According to the article, Richard L. Aboulafia, an aerospace and aviation analyst for the Teal Group, a consulting firm in Washington, says that Japan is "unique": “This is the way things used to be in the days before free trade,” he said. “Japan is the last unreconstructed believer in industrial policy writ large.”
I don't know. Sounds a little exaggerated to me, given what other governments are doing. Japan may be playing the same game as everyone else, but it's really nothing out of the ordinary in this industry.
Then there's the legal analysis. The article says:
No one has claimed that GS Yuasa [the Japanese battery-maker] was chosen for the 787 on anything but merit. But Boeing has long been dogged by suspicions that in return for its awarding major contracts to Japanese companies, which also receive subsidies from Japan’s government, the country’s airlines buy Boeing aircraft almost exclusively.
Such arrangements are banned by the World Trade Organization Agreement on Trade in Civil Aircraft, signed by the United States and Japan, which requires that aircraft purchases be made solely on the basis of “commercial and technological” factors and that procurement contracts should be entered into only on the basis of “competitive price, quality and delivery.” The agreement is intended to ensure that purchase decisions are based “strictly on technical and commercial factors,” according to the United States trade representative.
I had to look up the Agreement on Trade in Civil Aircraft. It's not something that comes up very often. Here are the relevant provisions:
Article 4
Government-Directed Procurement, Mandatory Sub-Contracts and Inducements
4.1 Purchasers of civil aircraft should be free to select suppliers on the basis of commercial and technological factors.
...
4.3 Signatories agree that the purchase of products covered by this Agreement should be made only on a competitive price, quality and delivery basis. ...
I'm having flash-backs to the long ago Film case. What exactly is the role of the Japanese government in all of this? Is there some evidence of the alleged governmental actions? Are purchasers of civil aircraft really "not free" to select suppliers? Is the purchase of products not made on a competitive basis? It will be hard to make a WTO claim without some good evidence on these issues.
Also, the role of this Agreement may be somewhat limited. Here is Article 8.8:
Signatories agree that, with respect to any dispute related to a matter covered by this Agreement, but not covered by other instruments multilaterally negotiated under the auspices of the GATT, the provisions of Articles XXII and XXIII of the General Agreement and the provisions of the Understanding related to Notification, Consultation, Dispute Settlement and Surveillance shall be applied, mutatis mutandis, by the Signatories and the Committee for the purposes of seeking settlement of such dispute. These procedures shall also be applied for the settlement of any dispute related to a matter covered by this Agreement and by another instrument multilaterally negotiated under the auspices of the GATT, should the parties to the dispute so agree.
I read this to say, you can bring a dispute under this Agreement if the matter is not covered by any other WTO rules; or if it is covered by other rules, you can bring a dispute only if the parties agree. That sounds pretty limiting in terms of the enforceability of the Agreement.
All in all, it is possible that the Japanese government has taken actions that violate WTO rules. But I feel like there's a lot more that I need to know about the situation first.
