Aircraft subsidy clash

WASHINGTON – The United States and the European Union faced off yesterday over billions of dollars in subsidies for top aircraft manufacturers Airbus and Boeing, by filing competing cases at the World Trade Organization. Washington, which has been pressing Brussels for a negotiated solution to the dispute, took the first step. It filed a case challenging European loans to help Airbus develop aircraft and terminated a 1992 civil aircraft agreement covering government support for the two manufacturers. The EU quickly filed its own case against US government 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’s cost of developing new aircraft, including $3.2 billion in loans for the new A380 super jumbo jet. Washington charges Airbus also has received about $3.3 billion in other government assistance for that project, helping it overtake Boeing. «Since its creation 35 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,» US 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 and Britain’s BAE Systems Plc. In its countercomplaint, the EU charged that Boeing has received some $23 billion in US subsidies since 1992. That includes about $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 US 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 US has chosen, we accept the challenge, not least because it is high time to put an end to massive illegal US subsidies to Boeing which damage Airbus, in particular those for Boeing’s new 7E7 program,» he said. Presidential election The US action could help President George W. Bush’s standing in Democratic-leaning Washington state in the close-fought Nov. 2 presidential election. A senior US trade official denied the timing was politically motivated. «It’s convenient for (European officials) to write this off nothing more than election-year politics in the US. 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. The official, who spoke on condition he not be identified, said the United States still hoped to work out a deal with the EU and he said the cases could help that process along. Under WTO rules, the two sides must hold consultations over the next 60 days before formal settlement proceedings begin. US 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.» A London-based analyst who asked not to be identified said it could take years to resolve the issue. Transatlantic tensions The spat could reignite transatlantic tensions over US tax breaks for exporters, including Boeing – a dispute that had looked headed for resolution. US 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 US exports in that dispute if the United States challenged European loans for Airbus. US officials said they would object to any attempt to link the two disputes.