U.S., EU in WTO Clash Over Airbus

The United States and the European Union (search) clashed Wednesday in a billion-dollar, trans-Atlantic trade war centering on contentions of unfair subsidies for Europe's Airbus (search) and America's Boeing Co. (BA), the world's two biggest airplane makers.

U.S. trade authorities fired the first volley, saying they were filing a complaint against the European Union to the World Trade Organization (search), 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.

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.

"If this is the path the U.S. has chosen, we accept the challenge," EU Trade Commissioner Pascal Lamy (search) said in a statement issued barely an hour after his U.S. counterpart, Robert Zoellick (search), announced the U.S. action.

The Office of the United States Trade Representative (search) 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," U.S 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 rationalization 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 Bush, who is facing criticism from his Democratic challenger, John Kerry, over the loss of U.S. manufacturing jobs.

Lamy 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.

Chicago-based Boeing and Airbus, which is owned by the European aerospace company EADS and the U.K.'s BAE Systems PLC, compete in a wide range of civilian and military aircraft markets. Airbus has over the past decade supplanted Boeing as the world's biggest aircraft manufacturer, delivering more planes than Boeing for the first time last year and will do so again in 2005.

The United States and EU agreed in 1992 on a deal which limited subsidies for the two airplane makers to 33 percent of the production costs for new models.

Boeing has long been frustrated that France-based Airbus has continued to get government money to help it develop new planes such as the A380 (search), even though it has become Boeing's commercial equal.

Airbus declined to comment on the United States' action.

The European Union, in its counter complaint with the WTO, seized on what it says are indirect subsidies to Boeing — including tax breaks of more than $3 billion that Washington state has promised Boeing to build its planned 7E7 (search) jetliner in Everett, Wash.

Boeing hailed the U.S. government's decision to file a complaint.

"The Boeing Company fully supports the action taken today by the U.S. 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 and chief executive Harry Stonecipher (search).

The U.S. trade office said that when the 1992 agreement was negotiated, Airbus accounted for only about 30 percent of the global market. It now represents more than 50 percent, U.S. 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 U.S. government feels is necessary to reach a new agreement that achieves this goal," he said.

On Capitol Hill, Sen. Maria Cantwell, D-Wash., and Rep. George Nethercutt Jr., R-Wash., welcomed the U.S. decision.

"E.U. launch aid subsidies have allowed Airbus to finance a cheaper plane thanks to the European governments' deep pockets," Cantwell said. "Consumers win when there is true competition, not direct government financing."

In midday trading on the New York Stock Exchange, Boeing shares were up 19 cents at $51.68