U.S., EU Clash Anew Over Plane Deal

The European Union (search) and the United States exchanged blows again on Friday over a transatlantic aircraft pact, sharpening a trade row and calling into question funding for the world's top aircraft makers.

The EU executive Commission said Washington's "unilateral" termination of the accord, which governs state aid to Boeing Co. (BA) and Airbus (search), was illegal so the pact was still in force. The United States said it was justified in ending the agreement because the EU had violated its terms.

The EU also demanded consultations before Washington gives any aid to Boeing's "Dreamliner" 7E7 (search) project.

The tit-for-tat exchange is the latest in the trade spat between the world's top trading partners and comes just weeks before the U.S. presidential election.

Washington and Brussels filed reciprocal complaints against each other's public subsidies to Airbus and Boeing with the World Trade Organization (search) on Wednesday.

"We have ... the feeling that this may be a way for them to escape from the disciplines in the 1992 agreement," Commission spokeswoman Arancha Gonzalez told a daily briefing, saying the United States had breached the accord.

The United States said it had terminated the pact because the EU had violated it, and said the status of the aircraft deal had no bearing on its ability to file the case with the WTO.

"The EU has not acted in accordance with the agreement, notably by providing various production subsidies for the A380 (search)," U.S. Trade Representative office (USTR) spokesman Richard Mills said, referring to the new Airbus super jumbo jet.

The dispute, which erupted in the last stretch of a tightening U.S. presidential campaign between President Bush and Democratic rival Senator John Kerry, has highlighted transatlantic tensions over a raft of trade issues.

Gonzalez said in order to terminate the aircraft agreement, one side had to give a year's notice or show that the other side had violated the pact's terms.

The Commission said Washington had provided no evidence of EU non-compliance with the 1992 pact and made only "groundless and unsubstantiated general allegations."

"They have terminated the agreement in an illegal manner," she told reporters. "The EU considers the abrogation invalid and consequently the agreement is still in force."

In addition, the EU said the United States had violated the agreement's stipulation that the parties avoid any trade conflict on issues governed by the pact.

"The United States has failed to comply with this obligation as well as its obligation to seek to resolve any dispute through consultations," the letter said.

The United States rejected the EU's charge that it was acting unilaterally.

"It's difficult to understand, to see how enlisting a multilateral organization like the WTO to help resolve a bilateral dispute is considered unilateral. Going to the WTO is the very example of multilateralism," USTR's Mills said.

Officials on the EU side have accused the United States of playing politics in a presidential election year.

A senior U.S. trade official said on Thursday the timing of the challenge had more to do with the prospect of European government subsidies for the launch of a new Airbus plane, the A350 (search), which would rival Boeing's 7E7.

At a European Chamber of Commerce lunch in Hanoi on Friday, EU Trade Commissioner Pascal Lamy said: "We are absolutely convinced that the fact that this announcement has taken place between the debate between the candidates for presidents ... is of course nothing to do with U.S. elections."

The comments drew laughter from the audience.