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US, EU spar over Airbus, Boeing subsidies
Updated: 2004-10-07 11:32

The United States and the European Union took their fight over billions of dollars in subsidies for Airbus and Boeing to the World Trade Organization on Wednesday.

Washington filed a case challenging European loans to help Airbus develop aircraft and terminated a 1992 civil aircraft agreement covering government support for the two top aircraft manufacturers.

The 25-nation EU quickly filed a countercomplaint against U.S. support for Boeing, which over the past decade has lost its position as the world's largest civil aircraft manufacturer to its European rival.

The 1992 agreement allows European governments to finance up to 33 percent of Airbus' cost of developing new aircraft, including US$3.2 billion in loans for the new A380 superjumbo jet. Washington charges Airbus also has received about US$3.3 billion in other government assistance for that project, helping it overtake Boeing.

"Since its creation thirty-five years ago, some Europeans have justified subsidies to Airbus as necessary to support an 'infant' industry. If that rationalization were ever valid, its time has long passed," U.S. Trade Representative Robert Zoellick said in a statement.

Airbus, which began as a consortium of French, German, Spanish and British companies, is now co-owned by European aerospace company EADS (EAD.PA) and Britain's BAE Systems Plc (BA.L).

In its countercomplaint, the EU said Boeing has received some US$23 billion in U.S. subsidies since 1992. That includes about US$3.2 billion in tax breaks from Washington state to persuade Boeing to base production of its 200-to-300-seater 7E7 airplane there, EU officials said.

The U.S. complaint was "obviously an attempt to divert attention from Boeing's self-inflicted decline," European Union Trade Commissioner Pascal Lamy said in a statement.

"If this is the path the U.S. has chosen, we accept the challenge, not least because it is high time to put an end to massive illegal U.S. subsidies to Boeing which damage Airbus, in particular those for Boeing's new 7E7 program," he said.

Presidential Election

The U.S. action could help Republican President Bush's standing in Democratic-leaning Washington state in the close-fought Nov. 2 presidential election.

A senior U.S. trade official denied the timing was politically motivated.

"It's convenient for (European officials) to write this off as nothing more than election-year politics in the U.S. That's not accurate. What's driving this is the substance -- the talk of a new package, a new tranche of subsidies for a new Airbus plane, the A350," he said.

Washington state's senators -- Democrats Patty Murray and Maria Cantwell -- welcomed the U.S. move. But Rep. Sander Levin, a Michigan Democrat and leader on trade for his party, criticized the White House for not bringing a case sooner.

U.S. officials said they still wanted to work out a deal with the EU and hoped the cases could help that along.

But Gary Hufbauer, a senior trade analyst at the Institute for International Economics, said a quick deal was unlikely.

"My view is that the stakes are so large that we have to get much further along in the process," he said.

WTO rules require the two sides to hold more talks over the next 60 days before formal dispute settlement proceedings begin. U.S. cases against Airbus subsidies in 1989 and 1991 led to the 1992 pact.

Boeing President Harry Stonecipher said it was clear the 1992 agreement "has outlived its usefulness."

Transatlantic Tensions

The spat could reignite transatlantic tensions over U.S. tax breaks for exporters, including Boeing -- a dispute that had looked headed for resolution.

U.S. House of Representatives and Senate negotiators have reached agreement on a bill to repeal those tax breaks, which the WTO has ruled are illegal export subsidies. The bill also provides three-year transitional relief to Boeing and other companies that have benefited from the provisions.

EU officials previously have indicated some tolerance for the three-year transition, although they believe WTO rules require the United States to end the tax breaks immediately.

In recent days, they have hinted they might keep sanctions on some $4 billion worth of U.S. exports in that dispute if the United States challenged European loans for Airbus.

U.S. officials said they would object to any attempt to link the two disputes.

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