Round Two: US, EU Boeing, Airbus Subsidy Battle Intensifies
Reaction to the termination of a bilateral 1992 agreement is the latest punch thrown
WASHINGTON, DC / BRUSSELS, Belgium - 10/09/04 - The bell has rung on Round Two in the fight between the US and the European Union on the issue of commercial aircraft production subsidies.
Over the past several days, both Washington and Brussels have filed unprecedented counter-complaints with the World Trade Organization (WTO) charging each other with providing their respective major aircraft makers - Seattle-based Boeing and the EU-consortium Airbus SAS operation - with "illegal" subsidies and tax incentives.
Late yesterday, the already heated situation took a turn for the worse with the EU reacting forcefully to a major component of Wednesday's US complaint filing - the termination of a 1992 bilateral agreement between Washington and Brussels stipulating that both the US and the EU could fund up to a third of aircraft development with public aid and that such support wouldn't be challenged in the WTO.
In a sharply-worded letter sent to US Trade Representative Robert Zoellick (USTR), the EU's Executive Commission said it considered the agreement to be "still in force" while the two sides continue to slug it out at the WTO.
"The EU," the letter said, "expects the US to take the necessary steps to ensure full compliance with its international obligations."
It also warned the US against going ahead "in the meantime" with "massive subsidies" for Boeing's planned 7E7 "Dreamliner" commercial jet.
According to industry reports, Boeing - which lost its position two years ago to Airbus as the world's largest commercial aircraft maker - has staked its future on the much smaller, fuel-efficient 7E7, which is set to enter service sometime in 2008.
The "Dreamliner" is program is in direct competition with the Airbus A380, a 555-seat "superjumbo" combi-passenger aircraft set to take to the skies in the summer of 2006.
European governments, the US complaint charges, have collectively loaned Airbus about $15 billion in so-called "launch aid" subsidies to develop the A380, while the EU has countered with claims that Boeing has been the recipient of more than $23 billion in government largesse since 1992, as well as an additional $3 billion in tax incentives from the company's home-state of Washington.
The USTR' office has defended the termination of the 1992 agreement saying that pact allowed either member to abrogate the pact if the other violated its terms. responding to European criticism of the move.
"The EU has not acted in accordance with the agreement, notably by providing various production subsidies for the A380," said USTR spokesman Richard Mills adding that the EU "launch aid" subsidies "were not allowed under the 12-year-old accord."
The US, he said, is also claiming that "nothing in the 1992 agreement, even if it remained in force, would bar it from challenging the A380 launch aid program at the WTO."
Reacting to the subsidy battle, Manfred Bischoff, chairman of the European aerospace giant EADS, told reporters Thursday that he "deplored the launch of a trade war between the European Union and the US" and that "the idea of "national fights over national products in our industry is outdated."
EADS, along with UK-headquartered BAE, are the largest partners in the EU-wide Airbus manufacturing consortium.
According to Bischoff, the aerospace industry had become increasingly global, undermining the concept of national products.
"EADS is one of the largest customers of the US aerospace industry, buying $6 billion of equipment in the US, and Airbus products have more American content than some of Boeing's products," he said. "If you have an A-380 with a GE engine against a 777 with a Rolls-Royce engine, I bet you have more US content in ours."
Bischoff expressed concern about the impact on the transatlantic partnership of a hostile trade battle, telling reporters, "I would assume the EU are wise enough to handle it to ensure that as little porcelain is destroyed in transatlantic trade as possible. We hope that after the [US] election is over, it will be handled with the same wisdom on the US government side to destroy as little in trade relations. We have enough issues. We don't need further ones."
He said he did not know whether Brussels would address the issue purely through the WTO or whether bilateral discussions would continue.
"It is not up to us to tell them what to do," he said, adding that there is "a possibility" the the WTO complaint might be withdrawn and the situation defused.
"It is a political decision," said Bischoff. "If they [the Americans] feel they have less to win and more to lose. I don't know whether this will be fought through."
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