- The Washington Times - Saturday, January 15, 2005

The United States and Europe have averted — for the time being — a trade collision over their mutual complaints about subsidies to aircraft makers Boeing and Airbus. The near-miss improves the atmosphere for President Bush’s trip to Europe next month and could allow the parties to avoid a lengthy arbitration process at the World Trade Organization (WTO). All the same, both EU and Airbus officials have recently made some disconcerting remarks about the issue.

On Tuesday, U.S. and EU officials agreed not to pursue their complaints against each other at the WTO over the Boeing-Airbus dispute and to negotiate grievances over the next three months. Over that period, neither Boeing and Airbus will be awarded new government subsidies.

The primary grievance that U.S. officials have against EU support of Airbus is the so-called launch aid the aircraft receives. That aid allows Airbus to receive government funding for 33 percent of the cost of new aircraft it develops. Boeing receives no such government support for the launching of its new planes, and U.S. officials quite correctly claimed in an Oct. 6 WTO complaint that Airbus receives those subsidies unfairly and at a cost to American workers. The EU aid over the years is at least $15 billion.

EU officials complained about U.S. support of Boeing immediately after, but their argument is murkier. The European Union is claiming that U.S. contracts awarded to Boeing are a subsidy, even though Airbus’ parent companies — the European Aeronautics, Defense and Space and BAE Systems — also compete for and have been awarded Pentagon contracts. Also, the U.S. system of awarding defense contracts is considerably more open than Europe’s. EU officials also claim that the research and development aid that Boeing gets from NASA is an illegal subsidy, but NASA research is publicly available, and Airbus used that research in the 1980s to make its A320 more aerodynamic. Finally, the European Union claims tax breaks that Boeing receives are, in effect, another subsidy.

European Trade Commission Peter Mandelson said last week in France, “If America and Europe had fallen out so disastrously over this issue I think it would … have affected our ability to cooperate and collaborate on the Doha agenda and the trade round.” The implication is disturbing. Clearly, all sides would prefer an amicable settlement, but the Doha global trade round cannot be held hostage to the Boeing-Airbus dispute. Equally offputting was a recent comment by Airbus’ chief executive, Noel Forgeard, who said that, despite the talks, he still expects Airbus to eventually receive government launch aid for its new A350 jet.

It is difficult to imagine that any negotiated settlement between U.S. and EU officials would not entail an end to that type of upfront subsidy. If EU officials fail to move on that issue, U.S. officials will just have to return to the WTO.

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