EU-US conflict over subsidies reignites

Airline Industry Information, May 31, 2005

AIRLINE INDUSTRY INFORMATION-(C)1997-2005 M2 COMMUNICATIONS LTD

The conflict between the US and the European Union over subsidies to aircraft manufacturers Airbus and Boeing has reignited.

The US reportedly chose to revive the case against EU state aid to Airbus at the World Trade Organisation, followed by a move from the EU to revive its case against aid to Boeing 24 hours later. Both sides have accused each other of not being interested in resolving the issue and phones have been hung up in the middle of talks on both sides, the BBC reported.

Although the EU wants to resolve the matter with negotiation and not litigation, Brussels has maintained that it will respond in kind if the US went to the WTO, Reuters reported. The EU Trade Commissioner Peter Mandelson expects the US decision to spark the biggest, most difficult and most costly legal dispute in the history of the WTO. Mandelson has laid the blame for involving the organisation with the US and referred to it as a "grudge fight".

The EU aid to Airbus is compliant with WTO regulations, according to Airbus and its shareholders. The statement from Airbus also said that it expected the loans to continue.

The EU suggested yesterday (30 May) that the Airbus subsidies would be cut and that the parties would resume the talks started in January. The response from the US was that the offer to cut 30% did not go far enough, pointing out that the EU is about to make a commitment for USD1.7bn in new launch aid to Airbus. The US Trade Representative Rob Portman has said that the country would rather not go to the WTO but that the EU is not willing to hold off launch aid and that it has only offered to reduce subsidies, not end them.

According to the EU, Boeing is being given illegal subsidies in the form of military contracts and tax breaks while the US says that the EU has funded Airbus' latest A380 project through subsidies.

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