Swap complaints over plane subsidies

U.S., EU

Actions before the WTO relate to Airbus, Boeing

June 01, 2005|By BLOOMBERG NEWS

BRUSSELS, Belgium - The United States and European Union sued each other at the World Trade Organization over subsidies to airplane makers Airbus SAS and Boeing Co., setting the stage for the biggest clash in the WTO's 10-year history.

The EU asked the WTO yesterday to outlaw U.S. aid to Boeing, a day after the Bush administration revived its case against European government loans to Airbus. Boeing lost its lead as the world's top seller of commercial jets to Airbus two years ago.

Boeing, which EU Trade Commissioner Peter Mandelson said was instrumental in pressuring the United States to lodge the complaint, is attacking Airbus "not because it fears subsidies, but because it fears competition," he told a Brussels news conference. "I can assure you Europe's interests will be fully defended."

The WTO dispute deepens tension in the $750 billion trade relationship between the EU and the United States and threatens to disrupt the financing used by the world's only makers of large commercial planes to develop new models.

At stake is funding worth a combined $5 billion for the 250-seat Boeing 787, to be introduced in 2008, and so-called launch aid worth $1.7 billion and billions more in other support for the Airbus A350.

The EU and Washington had been trying to reach a negotiated solution even after formal talks broke down over the weekend, as the United States rejected a last-minute proposal from Mandelson to restrict but not eliminate government loans to aircraft makers.

"The U.S. government has insisted that these subsidies cease," said former U.S. Trade Representative Charlene Barshefsky, who now is an attorney representing Boeing in the case. "Europe has refused to do so, and under those circumstances it's not surprising that the U.S. government has gone forward with the case."

Last month, Airbus asked four European governments for $1.7 billion in loans for the A350. Airbus hasn't given the go-ahead for the jet, and the WTO panel is scheduled to be set up June 13, the first day of the Paris Air Show.

The filing was timed so "Boeing can rain on Airbus' parade at the Paris Air Show," Mandelson said.

Aid to the last Airbus aircraft, the A380, was $3.7 billion, according to the United States. Under terms of the aid, loans can be at the level of government interest rates, plus at least 1 percent, and are repayable only if the aircraft is commercially successful.

In its five-page filing to the WTO, the United States said noncommercial financing had been given to Airbus dating back to the A300 in 1972.

The filing also said the European Investment Bank provided more than $1 billion in subsidized financing to Airbus companies, and local governments spent more than $1 billion to develop or upgrade facilities for the company.

U.S. payments to Boeing over the period have totaled more than $29 billion, the EU said. That figure includes Washington-state tax incentives, infrastructure payments, launch aid from Japan, research funding from the Department of Defense and tax export breaks.

Mandelson said the case could distract attention from other trade matters. "The WTO has better things to do with its time than referee this grudge fight," he said.

The case will be the "biggest and most costly" WTO dispute ever, will take years and the outcome won't be clear, he said. "At that stage, after all that expense of time, effort and money, we have to come back and negotiate a way forward, just as we should now."

In the meantime, Airbus can obtain aid "with impunity because launch investment is not a subsidy; governments are making a profit," Mandelson said.

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