Why the WTO pact is essential to blunting the China challenge.
Credit: (from left): Airbus, AFP/Getty Images, Paul Weatherman/Boeing
Airbus and Boeing have finally ended their World Trade Organization aircraft-subsidy feud of nearly two decades, and it couldn’t have come a moment too soon. Spending more time sparring with each other over which government gave an unfair boost to its commercial aircraft industry would have continued to obscure the growing challenge that China’s own aircraft subsidies pose.
The U.S. and EU have agreed not to provide undue R&D funding to Boeing or Airbus. But another important aspect of the five-year truce is their commitment to form a working group to analyze so-called nonmarket practices of third parties that may harm their large civil aircraft sectors. This signals that the West is finally taking steps to stop the unfair business practices by China over the last 20 years to gain dominance in an array of other manufacturing and high-tech sectors (see article).
The aviation challenge from China is two-fold. The country’s increasingly assertive rulers have made no secret of their ambition to turn the Airbus-Boeing duopoly in large civil aircraft into a triopoly. Over the last two decades, they have funneled money into the Commercial Aircraft Corp. of China (Comac) and its C919 airliner, which is now in flight testing and could be delivered before the year is out. Nobody sees the C919 as a technological threat to Airbus or Boeing. But China’s massive market and state-run economy are being leveraged to boost orders domestically, ensuring at least a modicum of commercial success. And anyone who thinks future Chinese airplanes will not be better is ignoring the swift technological progress the once-backward nation has made in areas such as hypersonics, space exploration (and weapons), sea power and artificial intelligence (see article).
A second, less discussed challenge is already harming Boeing. In 2000, China accounted for 2% of deliveries of commercial Western aircraft. By 2018, that share had risen to 25%, giving Beijing enormous clout that it is using in its trade and political disputes. China has not announced an order from Boeing since 2017, and months after the FAA and European Union's EASA recertified the 737 MAX to fly, Chinese regulators still have not followed suit. Boeing is being held hostage in a wider geopolitical standoff with the U.S. While Airbus may benefit in the short term, neither company wants to see its access to a crucial market tied to political whims or technology transfer.
The good news is that the West has some leverage of its own. A majority of the C919’s components are made by Western suppliers, and Comac has little in terms of a maintenance infrastructure. China may hold the keys to a large market, but the West controls access to critical engine technology, a massive supply chain and repair shops. The WTO working group is the one place where the U.S. and EU can begin to change rules that have benefited Beijing for many years.
A joint June 17 statement from U.S. Trade Representative Katherine Tai and UK Secretary of State for International Trade Liz Truss says the new framework allows the two nations to counter nonmarket practices. “This agreement is a model for ensuring fair competition and addressing challenges posed by nonmarket economies,” they write, clearly aiming at China.
U.S. President Joe Biden indicated the WTO agreement will provide a model for dealing with other economic challenges posed by China, which has a history of demanding technology transfer as the price for access to its lucrative markets. “The U.S. and EU will work together in specific ways that reflect our high standards, including collaborating on inward and outbound investment and technology transfer,” he says.
The West also is ramping up pressure beyond aviation as an emboldened China asserts its growing economic and military might. NATO has declared China “a systematic challenge,” and its director, Jens Stoltenberg, warns that an attack on a space asset could trigger Article V, which binds alliance members to provide assistance to the member that was attacked. In addition, the U.S. is closely scrutinizing Chinese investment in American companies and ramping up cybersecurity.
It would be foolhardy to think Beijing will suddenly fall into line and play nice with the West. Its rulers believe a sleeping giant has awoken and that it is time for their nation to take its rightful place as a leading world power. China certainly is within its rights to develop an aerospace industry, but if it wants to compete on the world stage, it must do so on a level playing field. The WTO working group can serve as an important tool to unite the international community in limiting China’s unfair trade practices and chart a course for protecting Western innovations.
