The battle between the U.S. and European Union over aircraft subsidies is far from settled, but the World Trade Organization, in the first of several judgments on the matter, has upheld some key elements of Washington's case that Airbus has been receiving an unfair helping hand.

However, Washington's ability to take the early advantage has as much to do with procedure as anything else, since the WTO will not issue a preliminary finding on the EU's countercase for several months, perhaps not before next year. Final reports for both cases should come in 2010.

Nevertheless, the preliminary ruling includes some important WTO findings.

As widely expected, the WTO determined that the loans that European states were advancing to Airbus were indeed illegal subsidies, as Washington has alleged.

The details of the confidential report - one document was handed to U.S. and one to EU representatives Friday afternoon in Geneva - were still closely guarded. However, officials confirmed the WTO found fault with the loans Airbus was provided on a number of programs, including the A380. The A350 was not part of the case.

However, Airbus officials argue that even if the loans were ruled to be a subsidy, in the case of the A380 they weren't trade distorting. They point to Boeing's repeated argument that the A380 was chasing a non-existing market that Boeing would not contest.

Whether the WTO put a dollar figure on the level of harm done to the U.S. by the subsidies was not immediately clear. Such an amount would be critical when it eventually comes to potential retaliatory tarrifs.

The Aerospace Industries Assn. of America applauded the WTO's subsidy finding. In a statement, AIA president and CEO Marion Blakey noted that "today's ruling is an important step toward achieving a level and fair playing field that will allow the U.S. aerospace industry to flourish in the international marketplace."

The subsidy dispute dates back to 2004, when Washington formally abandoned an agreement on large commercial aircraft subsidies that dated back to 1991, and argued loans Airbus was receiving were so favorable, they had market-distorting effects. In early 2005, Brussels fired back, arguing that several NASA research projects unfairly aided Boeing's development of new aircraft and that the aircraft maker also has gained undo advantage from leveraging defense research.

What the long-term effect will be remains to be resolved. Both sides can appeal the WTO judgment and, in the case of the two cases, at least one appeal is expected. That means a final legal outcome may not emerge until 2012 or later. Even then, the outcome isn't clear. As the U.S. demonstrated on the Foreign Sales Corporate case it lost to the EU over export tax breaks, small changes to the legislation brought the U.S. into compliance,

AIA also used the ruling to signal its concerns about aid other countries are providing as they try to grow their aircraft manufacturing base. "While preliminary, the ruling provides much-needed guidance to WTO members that are involved in or considering entering into civil aircraft production," Blakey said.

Photo credit: Airbus