Of Course You Know, Doc, This Means War

It was just six weeks ago that EU Trade Commissioner Peter Mandelson declared his version of peace in our time -- a pledge that the union's dispute with the US over airplane manufacturing subsidies would be resolved without a battle in open trade court. Now, the US has filed a World Trade Organization suit against the EU, alleging unfair subsidies to Airbus. Mandelson, abandoning hopes of settling without launching a trade war, has filed a countersuit, accusing local governments in the States of, in effect, subsidizing Boeing.

Of course you know, this means war. And it will be the biggest trade war the WTO has ever seen.

Mandelson told reporters Tuesday that Boeing was "instrumental in pressuring the US government to file the WTO suit, "not because it fears subsidies, but because it fears competition. "I can assure you Europe's interests will be fully defended." Mandelson was quoted by Bloomberg News.

The first shots in the transcontinental trade war were fired after Airbus, true to its word, asked European governments for $1.7 billion in financial aid to help it launch the A350, a direct competitor to Boeing's heavy-selling 787. After the original US complaint was filed in October, negotiations broke down last month. Even then, Mandelson vowed there would be no lawsuit.

But over the weekend, the EU reportedly offered to cut the subsidies Airbus requested by 30-percent. That was apparently seen in Washington as a dare to file. US officials did just that.

Mandelson told reporters the Bush administration timed its filing so that "Boeing can rain on Airbus's parade at the Paris air show," which starts June 13. "The WTO has better things to do with its time than referee this grudge fight" with "quite destructive litigation."

"We would rather not have to go back to the WTO," US Trade Representative Rob Portman said in a statement Monday, also quoted by Bloomberg. "But the EU's insistence on moving forward with new launch aid is forcing our hand."

Ironically, there was one point on which both warring sides might agree: The WTO court dispute will take years to litigate and cost millions of dollars in attorneys' fees. "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," Mandelson said. And all the while, he conceded, Airbus can obtain aid "with impunity because launch investment is not a subsidy; governments are making a profit."

FMI: www.airbus.com, www.boeing.com, www.wto.org