Sun, Mar 20, 2005 - Page 11 News List

Talks on Boeing, Airbus aid collapse

DISPUTE Both the US and the EU claim that the other side's commercial plane maker has been receiving illegal subsidies. The stage is now set for the biggest-ever WTO case

BLOOMBERG

The US said talks with the European Union to settle a dispute over government aid to airplane makers Airbus SAS and Boeing Co. collapsed yesterday, prompting a Bush administration threat to resume what is the biggest legal case in World Trade Organization history.

"Although on Jan. 11, the EU agreed to a negotiating structure for eliminating large civil aircraft subsidies, over the last two months they've been backtracking and seeking to change the terms of the agreement," said Richard Mills, a spokesman for the US Trade Representative in Washington.

EU Trade Commissioner Peter Mandelson and former US Trade Representative Robert Zoellick, who is still managing the talks, had a one-hour teleconference today to set terms for concluding the initial stages of negotiations by April 11, US and EU officials said.

The US filed a complaint at the WTO on Oct. 6, claiming that more than US$15 billion in government loans to Toulouse, France-based Airbus amounted to illegal subsidies under global trade rules. The EU countered, saying Chicago-based Boeing has benefited from unfair support of as much as US$23 billion.

The two governments decided in December to settle their differences outside the trade body in order to avoid litigation and preserve the US$400-billion-a-year trade relationship between the US and EU. That trading partnership, the world's largest, is already marred by friction over US export tax breaks, an EU moratorium on genetically modified foods and EU customs rules.

"There are clearly difficult issues at stake but [Mandelson] doesn't recognize the portrayal of the state of play as offered by the US side," said Anthony Gooch, a spokesman for the European Commission in Washington.

Mills said the US is willing to keep a Jan. 11 agreement that precluded further subsidies, "but if the EU either breaks or refuses to extend terms, we will return to litigation."

Boeing, which lost its title of world's largest planemaker to Airbus in 2003, said it stands behind the US's decisions.

"We continue to support the US government's resolve to take all necessary steps to permanently end launch aid to Airbus," said Amanda Landers, a Washington-based spokeswoman for Boeing. "That aid is our main hardship with Airbus."

In a memo detailing a Sept. 16 meeting with the US, the EU said the WTO would probably rule aid to both Airbus and Boeing illegal. Litigation at the Geneva-based trade body may bring "mutually assured embarrassment," the memo said.

Most complaints at the WTO, set up on Jan. 1, 1995, as a successor to the General Agreement on Tariffs and Trade, are resolved without the need for arbitration.

The Bush administration has charged Airbus received more than US$15 billion in loans since 1967. The EU alleges Boeing has gotten US$23 billion through state-level tax breaks, military research assistance and Japanese aid to suppliers since 1992.

Boeing and Airbus are the only two manufacturers of large commercial jetliners. Boeing, which controlled about 73 percent of the market in 1993, has seen its share erode to 48 percent. Airbus sold 305 aircraft in 2003 compared with Boeing's 281, and the US says government aid to Airbus that was once justified to help an "infant industry," is no longer needed.

Airbus overtook Boeing in 2003 to become the leader in the US$50 billion-a-year airliner market. Airbus is now working on an A350 jet to undercut Boeing's planned 250-seat 7E7 jetliner that will be introduced in 2008.

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