First salvo in transatlantic air war over subsidies
The US and the EU set up multi billion pound transatlantic trade war today alleging unfair subsidies for Europe’s Airbus and America’s Boeing, two aviation industry giants.
US trade authorities fired the first volley, saying they were filing a complaint against the European Union to the World Trade Organisation, contesting what they regard as unfair subsidies provided to aircraft company Airbus by European governments.
The European Union quickly retaliated, filing its own complaint to the WTO, challenging “massive subsidies” for Boeing.
“If this is the path the US has chosen, we accept the challenge,” EU Trade Commissioner Pascal
Lamy said barely an hour after his US counterpart, Robert Zoellick, announced the American action in Washington.
The Office of the United States Trade Representative said it was taking the action because recent negotiations between the two sides failed to resolve the dispute.
“This is about fair competition and a level playing field,” US trade representative Zoellick said.
“Since its creation 35 years ago, some have justified subsidies to Airbus as necessary to support an infant industry. If that rationalisation were ever valid its time has long passed. Airbus now sells more large civil aircraft than Boeing,” he said.
Lamy, however, has dismissed the threat of a WTO challenge as “election-year politics” from President George Bush, who is facing criticism from his Democratic challengers over the loss of US manufacturing jobs in recent years.
He also accused the Bush administration of not being serious about negotiations in recent weeks that were aimed at modifying a 1992 bilateral agreement that covered support for civilian aircraft.
The dispute involves two large aircraft companies – Boeing against Airbus which is 20% owned by Britain’s BAE Systems. They compete in a wide range of civilian and military aircraft markets, and Airbus has over the past decade supplanted Boeing as the world’s biggest aircraft manufacturer.
The United States and EU agreed in 1992 on a deal which limited subsidies for the world’s two largest aircraft makers to 33% of the production costs for new models.
Chicago-based Boeing has long been frustrated that Airbus has continued to get government money to help it develop new planes such as the A380 superjumbo, even though it has become Boeing’s commercial equal in recent years.
Last year, Airbus delivered more planes than Boeing for the first time and will do so again in 2005.
Airbus declined to comment on the United States’ action.
Experts had long speculated that a US complaint would trigger the EU to file a counter complaint with the WTO about what it says are indirect subsidies to Boeing – including tax breaks of more than €2.5bn that Washington state has promised Boeing to build its planned 7E7 jetliner in the state.
Boeing hailed the US government’s decision to file a complaint.
“The Boeing Company fully supports the action taken today by the US government, which came only after unsuccessful government-to-government attempts to resolve the issue.
"It is clear that the 1992 agreement does not reflect current market realities and has outlived its usefulness,” said Boeing President Harry Stonecipher.
Generally speaking, the competing complaints begin a process where both parties try to work out the problem.
But if there’s no resolution in 60 days, then a WTO panel is set up to examine the dispute. On average, such a panel can take a year before issuing a decision, which can be appealed.
The US trade office said that when the 1992 agreement – now in dispute – was negotiated, Airbus accounted for only about 30 percent of the global market.
It now represents more than 50% of this market, US trade authorities said. “Clearly the 1992 agreement has outlived its usefulness,” the office said in a statement.
The United States also said that it was terminating that agreement, a right it said it could exercise under the terms of the 1992 pact.
“Terminating this agreement reinforces our belief that now is the time to end subsidies, ideally through a new agreement,” Zoellick said.
“We remain open to addressing Europe’s concerns with regard to government support they believe Boeing receives. It is in the interests of both Europe and the United States to find a durable solution to this long-standing problem,” he said.
Boeing’s Stonecipher seemed to strike a similar chord. ”Boeing will continue to support any course of action that the US government feels is necessary to reach a new agreement that achieves this goal,” he said.
On Capitol Hill, some politicians welcomed the US decision.
“EU launch aid subsidies have allowed Airbus to finance a cheaper plane thanks to the European governments’ deep pockets,” Senator Maria Cantwell said. “Consumers win when there is true competition, not direct government financing.”
