Monday, May 30, 2005

The Bush administration will ask the World Trade Organization to settle a fight with the European Union over billions of dollars in subsidies each side pays aircraft manufacturers.

The case is the biggest filed at the WTO.

The dispute stems from low-cost, no-risk loans, known as launch aid, that governments grant to Airbus, the Toulouse, France-based rival to Boeing Corp., headquartered in Chicago.

“We continue to prefer a negotiated solution, and we would rather not have to go back to the WTO. But the EU’s insistence on moving forward with new launch aid is forcing our hand,” said Rob Portman, the U.S. trade representative.

The United States last year abandoned an agreement that allowed an unspecified amount of subsidies and filed a WTO case, saying the loans violated global trade rules. Europe immediately countered with its own suit, arguing that federal, state and local government aid to Boeing outstripped funds allotted to Airbus.

The two sides later agreed to try to negotiate a solution rather than taking the case before a panel of WTO judges; but those talks faltered and yesterday the Bush administration restarted the case.

The question of aid is especially urgent for the two aircraft manufacturers, which are in intense competition as they develop new aircraft and look for new markets. Airbus is No. 1 in international sales and Boeing is No. 2.

Boeing, which last year urged the administration to file a WTO case, is trying to regain the top ranking with its 787 Dreamliner, a new passenger jet that relies on the latest technology to reduce fuel consumption. It is scheduled to begin service in 2008.

The 787 will compete with the Airbus A380, the world’s biggest commercial passenger airplane, when it enters service in the second half of 2006. The Bush administration yesterday said European governments had granted $6.5 billion in subsidies for the plane.

Airbus now is asking for $1.7 billion for another new model, the A350.

“Unfortunately, at this point, the EU is no longer willing to hold off on launch aid, and has only proposed to reduce subsidies, not end them,” Mr. Portman said.

EADS and BAE Systems, the European parent companies of Airbus, yesterday shot back at U.S. accusations of unfair subsidies.

“Boeing has amassed more than $5 billion in government subsidies to pay for [the 787’s] development and production, through U.S. and foreign government R&D funds, tax relief schemes and launch aid. New subsidies are being added every day,” the companies said.

If the WTO were to find one or both sides in violation of global rules, it could authorize several billion in sanctions that one side would apply to exports from the other.

Mr. Portman said a negotiated solution remains possible, but only if “the EU recommits to ending subsidies.” European Trade Commissioner Peter Mandelson and Mr. Portman spoke by phone Friday. Mr. Mandelson reportedly made a new offer to cut but not eliminate loans to Airbus.

But Europe made public aspects of the conversation, agitating the Bush administration.

After the U.S. decided to restart the case, Mr. Mandelson and Mr. Portman issued a joint statement: “We remain united in our determination that this dispute shall not affect our cooperation on wider bilateral and multilateral trade issues. We have worked together well so far, and intend to continue to do so.”

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