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Copy of MGMT389 Case Study

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yoomi choi

on 1 December 2013

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Transcript of Copy of MGMT389 Case Study

Brittney Adam
Andrew Bruce
Dominic Carroll

Boeing versus Airbus: Two Decades of Trade Dispute
1. Do you believe Airbus could have become a viable competitor without subsidies? Why?
A Subsidy is a grant by the government to a private person or business to assist an enterprise that is considered beneficial to the public
Both Boeing and Airbus were receiving considerable subsidies from their respective governments
Boeing received subsidies through tax credit for research and development
Airbus received subsidies through government loans at below market prices
Strategic Trade Policy
This policy aims at helping domestic firms overcome the first-mover advantages of foreign firms in global markets
Successful use of strategic trade policy by the British, French, German, and Spanish governments has assisted Airbus in their rise to industry leader
Airbus received approximately US $13.5 billion in subsidies from European governments
2. Why did the US industry react with caution to attempts by politicians to re-open the long running trade dispute?
International interconnectedness of this industry is substantial,
Significant tensions between the United States and Europe
US remained silent
Renewed dispute damaging retaliation from Europe
US would lose out lucrative business
2. Why did the US industry react with caution to attempts by politicians to re-open the long running trade dispute
Effectively damage trade relationships
Clinton's administration quietly dropped all talk of re-opening the trade dispute
Political “transfer risk” arising.
Attempts by Montana and Missouri senators
Facilitate a trade case against Airbus for using subsidies
Anti competitive
2.1 Why did the government decide
to re-open the case in 2004?
Subsidies enable a firm to achieve a first-mover advantage in an emerging industry
Boeing consistently maintained a large market share during the 1980's-90's
Airbus, through consistent growth and efficient management practices, eventually overtook Boeing in terms of planes built per year
Airbus was receiving excessive subsidies
Robert Zoellick formally renounced the 1992 agreement
Called an end to launch subsidies
3. What has been the role of the WTO in this dispute and what has been the outcome?
31st May, US files a formal request with World Trade Organization, to establish a resolution panel to counter "micro-political risk" in aviation industry

The EU filed a counter suit to the WTO claiming Boeing exceeded the terms of the 92’ agreement.

The WTO’s role has been to oversee each case, addressing all litigation issues and advising and policing any sanctions they feel necessary, particularly if they violate WTO laws and regulations.
Boeing merged for US$13.3 Billion
Boeing was in a financial crisis in their production system
Delayed in the deliveries in the late 1990s.
EU accused Boeing for receiving excessive subsidies
We believe the WTO has carefully addressed both sides fairly and given democratic solutions

The WTO process has provided each side with valuable and justified information.

An equitable decision could be reached if each side is persuaded to take advantage of the information and leverage that the WTO process has created to negotiate a comprehensive agreement, which would effectively eliminate subsidies to the maximum extent possible.

This would protect both parties current business interests, prevent a trade war, and set a framework for the entire civil aircraft industry which would apply to all emerging large aircraft makers from emerging countries, countering any future problems.
1.Government Subsidies
2.Politics in International Business
3.The Role of the World Trade Organisation
2.1 Why did the government decide
to re-open the case in 2004?
"Airbus was no longer an infant industry and that the company now sells more civil aircraft than US manufacturer Boeing”
Without assistance in the form of subsidies, the creation of an aircraft manufacturer which can viably compete with other businesses is practically impossible
Due to:
Large investments
Long break-even times
Significant experience curve effects
Volatile demand
Could they compete without subsidies?
Brief Introduction
Deals with the dispute that has existed between the US aircraft and the European Aircraft manufacturing.
Both sides were accused of receiving excessive subsidies from their respective governments
Dispute was settled, trade tensions erupted again in 2004.
Boeing referred the dispute to the World Trade Organization.
Long Haul Flights
Great Success
Consumers use Hubs
Costly Process
Outcome of WTO investigation
2011 WTO: Boeing recieved “$5.3 billion in illegal US subsidies that gave it an unfair advantage over rival Airbus.”
The WTO requested that Boeing pay back this amount, however with ongoing appeals the matter is yet to be resolved
WTO: “government loans to Airbus were a legal instrument” and not used to boost exports as first thought.
On Dec 1st 2011, Airbus stated it had fulfilled its obligations set out by the WTO, restructuring the financing of its aircraft to comply with the agreed terms and had urged Boeing to do the same
Airbus has asked the WTO to enforce “$12 billion in annual sanctions,” following Boeing’s failure to comply with the WTO’s requests handed down on March 12 2012
Complex legal processes, drawn out appeals, and the possible resulting consequences have meant that no major decision has been enforced
Full transcript