- The Washington Times - Monday, April 11, 2005

The United States and European Union yesterday missed a deadline to eliminate aircraft subsidies, leaving an uncertain future for government programs that have allowed billions of dollars in loans and tax breaks for the world’s top two commercial airplane manufacturers.

The sides are now feeling their way through an uncertain process in which a misunderstanding or misstep may lead to the costliest case yet taken to the World Trade Organization.

“I regret that it has not been possible to reach an interim agreement by 11 April. But, given the complexity of the issues, this is perhaps not surprising,” said Peter Mandelson, EU trade commissioner.

At stake are billions of dollars in loans, tax breaks and other assistance that U.S. and EU governments use to subsidize their flagship commercial aircraft manufacturers.

Airbus, a European consortium headquartered in Toulouse, France, and Boeing, based in Chicago, are locked in a high-stakes competition to develop and market the next generation of commercial aircraft.

Airbus, which in 2003 eclipsed Boeing’s sales of commercial aircraft, has asked European governments for $1.7 billion in loans to design and build the A350, a new passenger plane that will compete with Boeing’s new 787 Dreamliner.

Boeing wants such loans, which come with easy terms and are only paid back if the model is a success, negotiated out of existence or ruled illegal by the WTO.

The Bush administration last year pulled out of a 1992 agreement that allowed a set level of subsidies. In October it sued the European Union at the WTO, arguing that the $15 billion Airbus already had received in low-cost, no-risk loans should not be supplemented.

Europe responded with its own case, claiming that Boeing had received $23 billion in subsidies since 1992, including local tax breaks, infrastructure support, defense contracts and NASA research.

The two sides in January agreed to negotiate, rather than litigate, their differences. The decision by Robert B. Zoellick, who was then U.S. trade representative and continues to handle the Airbus-Boeing negotiations as deputy secretary of state, and Mr. Mandelson to step away from the WTO helped ease trans-Atlantic tensions over foreign and economic policy.

But last month Mr. Zoellick and Mr. Mandelson traded barbs after talks ground to a halt, in part over a European insistence that any deal include a U.S. export subsidy already ruled illegal by the WTO, and aid that Japan pays local Boeing subsidiaries to help build aircraft parts.

Only over the weekend did the United States and Europe step back from the brink, though they did not settle any of their differences and did not establish any formal steps to do so.

Richard Mills, spokesman for the U.S. Trade Representative’s Office, said the administration “remains prepared to negotiate.”

“In the event that the EU proceeds with additional subsidies for Airbus large civil aircraft, the United States will return to WTO dispute settlement,” Mr. Mills said.

Europe also said talks could continue. “I stand ready to continue negotiation,” Mr. Mandelson said.

A WTO case would take as long as two years and could hurt both companies.

The WTO defines a subsidy as a financial contribution by a government or public body that confers a benefit, a description that might be interpreted to include the bulk of government support for both companies.

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