U.S. Revives WTO Case Against European Aid to Airbus

MARK DRAJEM / Bloomberg 20may2005

Washington — The U.S. Trade Representative's office said it will ask the World Trade Organization to rule that European government loans to airplane maker Airbus SAS are illegal, setting up the biggest-ever dispute in WTO history.

The U.S. said it will file the papers tomorrow with the WTO in Geneva to have a panel of judges set up to hear its complaint. The European Union said it was disappointed with the decision and will make its own position known tomorrow.

``We would rather not have to go back to the WTO,'' U.S. Trade Representative Rob Portman said in a statement issued in Washington. ``But the EU's insistence on moving forward with new launch aid is forcing our hand.''

The announcement comes eight months after the U.S. filed its initial complaint, saying the government loans to Airbus, called launch aid, provide an unfair subsidy to the European aircraft makers. The EU countered with a lawsuit of its own claiming Chicago-based Boeing Co. has benefited from unfair support of as much as $23 billion.

The two governments tried to negotiate a deal without resorting to a WTO panel, agreeing in January to suspend any new aid and to defer litigation until April 11. Those talks broke down in mid-March, with the U.S saying EU nations weren't committed to ending new loans and accusing the 25-nation bloc of trying to change terms of a preliminary agreement.

Strained Ties

A WTO case threatens to disrupt financing that Boeing and Airbus -- the only two makers of large commercial jets -- tap to develop aircraft. The case also escalates tensions between the U.S. and Europe, whose $400 billion trade relationship is already marred by disputes over U.S. export tax breaks, EU resistance to genetically modified foods and European customs procedures.

The U.S. and European Trade Commissioner Peter Mandelson released a joint statement minutes after the announcement was made saying the dispute won't affect the broader commercial ties.

A WTO panel will have to decide whether the financing offered to Airbus by European governments constitutes ``prohibited'' or ``actionable'' subsidies under global trade rules. In the first instance, a final decision against the EU, which may take as long as a year, would force the 25-nation bloc to drop its support within 90 days. If WTO arbitrators find the aid ``actionable,'' the EU may open itself to retaliatory sanctions in the form of extra tariffs on its exports to the U.S.

The U.S. and EU had been operating under a 1992 accord that spelled out rules governing aid to aircraft makers. The U.S. withdrew from the deal in October when it filed its complaint.

Aid Request

Airbus is now working on an A350 jet to undercut Boeing's planned 250-seat 787 jetliner that will be introduced in 2008. Airbus requested $1.7 billion in government aid to help develop that aircraft, according to the U.S., which said that appeal prompted its move to the WTO today.

Toulouse, France-based Airbus sold 320 aircraft last year and had revenue of 20 billion euros ($25 billion), compared with 285 commercial aircraft and $22.4 billion in sales for Boeing.

The EU has warned that the trade complaint could cause ``mutual assured embarrassment,'' and the WTO would likely rule against aid to both companies, according to a European Commission memo that details a Sept. 16 meeting.

Airbus spokeswoman Barbara Kracht declined to comment. The European Commission's spokeswoman for trade, Claude Veron-Reville, wouldn't elaborate further on the EU's position. Mandelson is scheduled meet with reporters in Geneva tomorrow at 8 a.m. local time.

source: http://quote.bloomberg.com/apps/news?pid=10000006&sid=a9zk9in1FP8M&refer=home 30may2005

 

US Reopens Airbus Case with WTO

BBC 30may2005

The United States says it will reactivate a World Trade Organization (WTO) case against European Union subsidies for aircraft maker Airbus.

US trade officials said the decision followed the failure of latest efforts to reach a negotiated settlement.

Earlier on Monday, Europe made a new offer to the US to cut state aid to help resolve the long-running row.

Trade commissioner Peter Mandelson proposed that both sides cut part of their subsidies to Airbus and Boeing.

Mr Mandelson suggested both sides then discuss further aid cuts later.

According to one report, Brussels has offered to cut aid for the Airbus A350 mid-sized jet by up to 30%.

The A350 project is supposed to cost $3bn, some one-third of which is likely to have to come from European governments.

'Disappointing'

In response to Mr Mandelson's proposal, the US accused Brussels of "spinning to the press" and said neither side was supposed to be making their proposals public.

Brussels and Washington have been in talks since January on the issue.

Each side has accused the other of distorting the world market for aircraft by unfairly supporting their national manufacturers.

But, until now, the row has not been taken to the WTO.

The US said it had decided to proceed with the WTO case in light of preparations by the EU to commit $1.7bn in new launch aid to Airbus.

"The EU's insistence on moving forward with new launch aid is forcing our hand," said US trade representative Rob Portman.

Despite the latest development the EU has not yet announced a resumption of its case against Boeing.

"This is a disappointing move by the United States given the proposals for a negotiated solution the EU side made on Friday," said European Commission spokeswoman Claude Veron-Reville.

"The EU will make its own position known tomorrow."

source: http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/4594581.stm 30may2005

U.S. Resuming WTO Case

Reuters 30may2005

WASHINGTON — The United States is reactivating a World Trade Organization case against billions of dollars in European subsidies for aircraft maker Airbus after efforts to reach a negotiated settlement with Brussels failed, U.S. trade officials said on Monday.

"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," U.S. Trade Representative Rob Portman said in a statement.

Both the United States and the EU suspended competing WTO cases against government support for Airbus and its American competitor Boeing in January to try to negotiate a deal to eliminate aircraft subsidies on both sides of Atlantic.

The U.S. decision to reactivate its complaint follows phone calls between Portman and European Union Trade Commissioner Peter Mandelson on Friday and again on Monday to see if a deal could still be reached even though an April deadline for achieving that goal has long passed.

The two trade officials said in a joint statement that they would not let the aircraft spat spill into other trade areas.

"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," Portman and Mandelson said.

The United States warned recently it would only continue talks if the EU agreed not to provide any more "launch aid" loans for Airbus while the two sides negotiated.

"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," Portman said.

U.S. officials said that by requesting a WTO panel to hear its complaint Washington was providing time for the EU to reconsider its plans to provide new subsidies and instead recommit to the January framework for negotiating a comprehensive deal.

That would include an immediate halt to any further steps toward providing new launch aid and a recommitment that the purpose of the negotiations is to end new subsidies for civil aircraft, not merely to reduce them, U.S. officials said.

"We still believe that a bilateral negotiated solution is possible," said Portman. "But the negotiations won't succeed unless the EU recommits to ending subsidies."

source: http://www.washingtonpost.com/wp-dyn/content/article/2005/05/30/AR2005053000596_pf.html 30may2005

U.S. Gives Up on Talks to Resolve Dispute
Over EU Airbus Subsidies

U.S. Trade Representative Will
Take Case to World Trade Organization

SCOTT MILLER and DANIEL MICHAELS / Wall Street Journal 30may2005

The U.S. will take its case against Airbus subsidies to the World Trade Organization despite months of talks with the European Union, in what would likely be the most expensive case ever brought before the global trade body.

The United States Trade Representative said it would ask the global free-trade enforcer Tuesday to appoint a panel to decide the fate of billions of dollars worth of government aid doled out on each sides of the Atlantic to the world's top two airline makers.

EU negotiators had hoped to stave off the move, making offers over the weekend to trim by a third the so-called "launch aid" that European countries give Airbus to help it develop new aircraft. The U.S., however, has long demanded that the EU completely eliminate that aid before it would consider negotiating away money Boeing receives such as local government tax credits, or research and development grants for its defense projects. The U.S. statement said the EU could still reconsider and stop the WTO process --- but only by ending launch aid.

A WTO case, which normally takes two years or more to reach a resolution, threatens to severely strain already tender U.S.-EU trade relations. The effects could reach to the two powers' difficult efforts in long-running international trade talks known as the Doha Round, in which they have often combined to push the talks forward at critical junctures.

The dispute figures to be the most far-reaching in the WTO's 10-year history, potentially reordering the aircraft-making business with repercussion for both companies' huge raft of suppliers. The WTO's trade court, under mounting criticism from the U.S. congress, has authorized billions of dollars of sanctions on U.S. companies alone in recent years. Within the last year, for example, the U.S. congress was forced to rewrite part of the tax code to eliminate tax breaks for exporters that the trade court had found violate trade agreements.

At the center of the dispute is Europe's practice of granting Airbus so-called "launch aid" – preferential loans to help it develop new planes. What irks Boeing and the U.S. is that EU governments only require the loans be repaid if a plane is financially successful, giving Airbus a huge advantage in calculating the risk of new planes, in their view.

Fueling American discontent has been Airbus's steady rise in the global civilian aircraft market, with the European maker recently overtaking Boeing in market share. U.S. trade officials have argued Airbus's launch aid has largely made it the market leader.

Europeans counter that Boeing receives billions of dollars in indirect subsidies through research and military contracts. Launch aid, they maintain, is only a more efficient way of subsidizing aircraft makers. They point to over $3 billion in tax incentives that the state of Washington has offered to Boeing as an example of state aid. What's more, Europe argues, the Japanese government is engaging in a launch aid-type program of its own that benefits Boeing, by helping its own aircraft makers who are making the wing of the new 787 "Dreamliner."

The U.S. attack on European support to Airbus, while primarily focused on the proposed A350 passenger jetliner, is also aimed at protecting Boeing's lucrative position as the sole supplier of in-flight refueling tankers to the U.S. Department of Defense. Boeing last year was stripped of a $23 billion contract to supply the Pentagon with tankers after Boeing officials were implicated in a scandal surrounding the procurement.

Former Boeing chief executive Harry Stonecipher said last year that the company decided to restart a long dormant push for a WTO case against Europe over Airbus subsidies after EADS began promoting its tanker offer to the Pentagon over the past two years.

Airbus parent firms European Aeronautic Defence & Space Co. and BAE Systems want to offer the Pentagon new tankers using the Airbus A330 jetliner as the base. EADS has been looking for an American partner to help fit-out the European-made aircraft with military gear in the U.S. Northrop Grumman Corp. is currently considering a partnership with EADS North America, which has simultaneously been working to select a U.S. site for a tanker facility.

But Boeing's allies have been working to block any EADS offer. California Rep. Duncan Hunter, chairman of the House Armed Services Committee, recently moved to help Boeing in a bill that sets defense policy and spending for next year. The House last Wednesday passed the bill, which includes an amendment that would prevent the Pentagon from purchasing goods and services from foreign companies that receive government subsidies.

The provision could still be removed by the Senate, which has long taken a more moderate approach to international trade issues than the House. Yet even without the explicit provision forbidding EADS from bidding, the Pentagon will probably find it politically difficult to solicit a tanker bid from the company if the U.S. Trade Representative has filed a WTO case attacking it.

The U.S. decision caps months of increasingly bitter trans-Atlantic fighting. In a shock to many Europeans, President George W. Bush announced that Airbus had outgrown a 1992 aircraft agreement that had long kept the peace between Boeing and Airbus, and that subsidies should be slashed. At the time, EU officials put the comments down to naked election-year vote-getting and assumed the issue would disappear as quickly as it had surfaced.

Such dismissals angered U.S. trade officials who kept the pressure on the EU on into November and December before granting new EU trade Commissioner Peter Mandelson a three-month "peace treaty" in January, hoping that a change in the personal chemistry of negotiators might unlock the talks.

They were wrong. The peace treaty did not even run its allotted time before breaking down in a heated phone call on Friday evening late March. Both sides where quickly reduced to privately calling each other names and former United States Trade Representative Robert Zoellick, well known for his intellect and sharp tongue, shattered any semblance of a harmonious public facade by unfavorably comparing Mr. Mandelson with the EU's previous trade negotiator Pascal Lamy.