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Tue, Apr 19, 2005

US-EU Subsidy Talks: So It Comes Down To This?

US Says Patience Running Out

Ever been to a bar fight where the two participants spend most of their time warily circling each other, tossing insults instead of jabs? That's sort of like the current standoff between the US and the EU over commercial aviation subsidies. Tempers are short and you just know someone is going to throw a punch any minute.

Only this time, instead of landing both parties in the hoosegow for the night, that first punch will land them in front of an international tribunal, hoping for a legal knock-out -- or at least a unanimous decision -- in what would be the biggest lawsuit ever filed before the World Trade Organization.

So it is between the US and the European Union, proxies in the battle over government aid between commercial aircraft makers Airbus and Boeing.

As ANN reported earlier, the US and EU struck a deal to keep the issue out of WTO court by continuing negotiations beyond a bilateral 90-day resolution period. But a US trade official Friday warned the country's patience is wearing thin on the matter of government aid to Airbus.

Responding to a letter from his European counterpart, chief negotiator Robert Zoellick again spelled out the US threat: If EU governments give Airbus so much as a single euro to fund research of the A350, Washington lawyers would descend onto the WTO court like student pilots on a free buffet.

By all signs, US lawmakers are itching for a fight. Last week, Congress passed a resolution urging Zoellick to launch the lawyers "at the earliest possible opportunity" unless the EU agrees to stop Airbus launch subsidies altogether.

Those subsidies are like forgivable loans. Airbus uses them to research and design new lines of aircraft. So it was with the A380 and so it is with the proposed A350 -- a direct competitor to the Boeing 787 Dreamliner. If the project doesn't work out, Airbus's debt is forgiven.

The EU counters that local tax breaks granted Boeing in its search for everything from a new headquarters to a 787 final assembly site amounts to even more government subsidies.

The Congressional resolution said the Bush administration "should take any additional action the President considers appropriate to protect the interests of the United States in fair competition in the large commercial aircraft market."

In his letter to EU Trade Commissioner Peter Mandelson, "the Americans want to signal that they don't want to wait forever for a resumption of the negotiations," said one source in an interview with AFP.

While international trade experts watch Mandelson and Zoellick, political scientists are watching what happens in Paris. France is standing by to pour a big bucket of Jet-A on the fire by agreeing last week to consider Airbus's request for approximately $1.6 billion in help developing the A350.

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

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