U.S., EU to clash over airplane subsidies
(Agencies)
Updated: 2005-05-31 15:48

The United States and Europe, both bruised from a number of high-profile trade battles in recent years, are now preparing for what could be one of the biggest fights yet over government subsidies to commercial airline manufacturers.

The Bush administration announced late Monday that it planned to bring a case before the World Trade Organization charging the 25-nation European Union with providing illegal subsidies to Airbus, the major competitor to U.S.-based Boeing Co.

Boeing Co. sales chief Alan Mulally answers a question during an interview in Tokyo May 31, 2005. Mulally said on Tuesday European governments' subsidies to its archrival Airbus are unfair and wants to see a level playing field in airplane sales in the United States and Europe. [Reuters]

The action, which followed an offer from the EU on Friday to resolve the dispute, is likely to trigger a competing trade case by the EU accusing the U.S. government of illegally subsidizing Boeing.

In Brussels, Claude Veron-Reville, spokeswoman for EU Trade Commissioner Peter Mandelson, called the U.S. decision "a disappointing move by the United States given the proposals for a negotiated solution the EU side made on Friday."

EU Trade Commissioner Peter Mandelson called the U.S. action "highly regrettable" and said, "The WTO has better things to do than referee this grudge fight between Airbus and Boeing."

In announcing the administration decision, U.S. Trade Representative Rob Portman (news, bio, voting record) said the administration felt it had to act because of preparations being made by EU member nations to commit $1.7 billion to Airbus for developing a new airplane.

"The EU's insistence on moving forward with new launch aid is forcing our hand," Portman said in a statement.

The U.S. side is concerned about the potential subsidies that could be provided to Airbus for development of the A350 which is seen as a direct competitor to Boeing's new 787 Dreamliner in the market for mid-size, long-distance jets.

Mandelson on Friday provided Portman with a new EU proposal that would have had both sides make similar reductions in subsidies. But U.S. officials viewed the offer as a step back from an earlier goal to eliminate all subsidies.

"We still believe that a bilateral negotiated solution is possible, but the negotiations won't succeed unless the EU recommits to ending subsidies," Portman said in his statement.

In January, both sides had agreed to put WTO cases they had filed against each other in the fall on hold in an effort to seek a negotiated settlement during a 90-day period.

However, those talks went nowhere. U.S. officials accused the EU of not negotiating in good faith, while Mandelson said the Bush administration had no room to reach a negotiated settlement because of heavy political lobbying by Boeing.

Boeing spokesman Russ Young said Monday that the company strongly supported the trade representative's decision but still hoped for a settlement.

"We agree with the USTR that a negotiated settlement is preferable and hope serious U.S./EU discussions will continue as litigation proceeds," he said.

It is not unusual for both sides in a WTO case to keep seeking a settlement outside of the WTO dispute process, which will take months to conclude.

In a joint statement issued Monday, both Portman and Mandelson pledged to keep the airplane subsidy fight from spilling over into other trade issues. The effort to complete the Doha Round of global trade talks will require close cooperation between the United States and the EU.

"We remain united in our determination that this dispute shall not affect our cooperation on wider bilateral and multilateral trade issues," the two men said. "We have worked well together so far and intend to continue to do so."

Airbus was established in 1970 as a European consortium of French, German and later Spanish and British companies. In 2001 Airbus formally became a single integrated company, the European Aeronautic Defence and Space Co. and BAE Systems of Britain.

The fight over aircraft subsidies is just the latest in a string of trade battles between the United States and the European Union.

The United States won fights with the EU over an EU ban on U.S. beef containing growth hormones and another case involving U.S.-based banana companies.

But America has also lost high-profile cases involving steel tariffs and a U.S. export subsidy ruled illegal that was finally eliminated by Congress last fall in a sweeping rewrite of U.S. corporate taxes.

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