Industrial Subsidies and the Politics of World Trade: The Case of the Boeing 7e7

This paper offers a critical commentary on the launch process for a large commercial aircraft (LCA). Using the Boeing 7e7 as an example, we argue that the contemporary launch process bears little resemblance to previous practices. Specifically, the launch process involves both domestic and foreign subsidies because US production is now organized under a ‘systems integration’ basis. Under systems integration, the lead company (Boeing) spreads risk across a network of suppliers and production partners. Although final assembly takes place inside the US, much of the value-added is shared across the production network (as much as 70 percent). This has clear implications for US trade and employment, in that international subcontracting boosts foreign imports and reduces the need for domestic production workers. From a trade perspective, however, a potentially more troubling feature of the launch process is that major public subsidies are involved. While some of these subsidies are permitted under the World Trade Organization’s (WTO) subsidy rules (e.g., certain types of pre-production R&D support), other types of subsidies clearly violate the WTO’s regulations (e.g., infrastructure and production subsidies). This paper reviews the types of subsidies that Boeing has sought in the planning process for the 7e7 launch. Our evidence suggests that Boeing’s launch process contravenes existing international agreements on production subsidies. This does not bode well for the US commercial aerospace sector, especially in light of Boeing’s urgent need for a new aircraft program to compete with Airbus.