- The Washington Times - Friday, March 18, 2005

United States-European Union negotiations to head off a bruising trade fight over aircraft subsidies broke down yesterday, sending the two sides toward renewed and potentially costly litigation at the World Trade Organization.

The dispute has strained trans-Atlantic relations and would be the largest in WTO history.

“Despite our best efforts, it’s clear the EU is unwilling to eliminate launch aid subsidies. Although on Jan. 11 the EU agreed to a negotiation structure for eliminating large civil aircraft subsidies, over the last two months they have been backtracking and seeking to change terms of that agreement,” said Richard Mills, spokesman for the U.S. Trade Representative’s office.

The United States and European Union traded complaints at the WTO in October, accusing each another of paying out billions of dollars in illegal subsidies to their top aircraft manufacturers — Boeing, headquartered in Chicago, and Airbus, based in Toulouse, France.

The two sides agreed to negotiate the dispute in January, soon after EU Trade Commissioner Peter Mandelson assumed his post and called for a fresh start in trans-Atlantic relations.

But a telephone conversation yesterday between Mr. Mandelson and Deputy Secretary of State Robert B. Zoellick, who as recently departed U.S. trade representative is still managing the aircraft talks, indicated the discussions had collapsed.

A spokesman for Mr. Mandelson said he was “completely surprised” by the declaration.

Anthony Gooch, EU spokesman in Washington, said: “There are clearly difficult issues at stake, but [Mr. Mandelson] doesn’t recognize the portrayal of the state of play as offered by the U.S. side. If Mr. Zoellick is announcing that the negotiations are at an end, Mr. Mandelson has not been informed of this development.”

The terms of the Jan. 11 agreement gave the sides three months to work toward eliminating government payouts.

In the meantime, no new subsidies were to be given to either aircraft manufacturer and no action was to be taken at the WTO.

“The United States is willing to hold up to the standstill terms of the Jan. 11 agreement that precluded further subsidies, but if the EU either breaks or refuses to extend the terms, we will return to litigation to eliminate … subsidies,” Mr. Mills said.

The Bush administration in its WTO complaint said European governments have subsidized Airbus, a consortium of French, German, Spanish and British companies, with $15 billion in low-cost, no-risk loans for new projects.

Europe’s WTO case responded with a claim of $23 billion in subsidies for Boeing since 1992.

The stakes are especially high as the companies build new generations of competing passenger aircraft. Airbus has developed the jumbo A380 and is designing a new model that will compete with Boeing’s bet for the 21st century, the 787 “Dreamliner.”

The WTO case was filed partly to head off another round of support for Airbus’ new aircraft model, the administration said.

The trans-Atlantic rivals fought a similar battle over subsidies in the late 1980s and early 1990s before a 1992 agreement allowed a set level of government support.

But Boeing’s then-President and Chief Executive Officer Harry Stonecipher last year began urging the Bush administration to confront the European conglomerate, arguing that the agreement had outlived its usefulness since Airbus sales started outpacing Boeing’s.

Airbus in 2003 passed Boeing in annual aircraft deliveries.

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