The European Union and the United States agreed Tuesday to settle their dispute over subsidies to Airbus SA (search) and Boeing Co. (BA) through bilateral talks rather than asking the World Trade Organization to resolve it.

The European Commission (search) said in a statement the EU and Washington "confirmed their willingness to resolve the dispute which has arisen between them over trade in large civil aircraft, and to devote time and resources to doing so by negotiation rather than pursuing the dispute through WTO panels."

EU Trade Commissioner Peter Mandelson (search) said he and U.S. Trade Representative Robert Zoellick (search) were "able to agree a way forward."

The European Commission said EU and U.S. trade negotiators would hold three months of talks to try and "eliminate different types of subsidies and to establish fair market-based competition" between the two huge aircraft manufacturers.

The two sides also agreed to refrain from giving new aid — for large civil aircraft development or production — to Airbus and Boeing during the talks.

"For the first time in this long-standing dispute, the U.S. and the EU have agreed that the goal should be to end subsidies," Zoellick said in a statement.

The talks will specifically try to reduce subsidies and come up with a list of approved aid the two aircraft makers can still receive.

"The agreement will be enforced through transparency and strong dispute settlement procedures," said the text of the EU-U.S. agreement.

The announcement comes after days of "intensive talks" EU officials said and averted a clash at the WTO in Geneva which could have ruled against both sides for possibly distorting competition in an already cutthroat market.

Last October, Washington threatened to launch a lawsuit at the WTO in Geneva over subsidies to Airbus. Mandelson, the EU's new trade commissioner, has said the EU would file a countersuit about alleged subsidies given to Chicago-based Boeing.

The new talks will try to renegotiate a 1992 accord that foresaw a gradual reduction in subsidies for aircraft makers.

Washington has argued for a renegotiation saying Airbus now grabs more than 50 percent of global orders for passenger planes and no longer needs public help.

If a deal on cutting subsidies is reached, the EU and the United States will try to "broaden the agreement" including other countries with civil aircraft industries, the EU said.

Both Washington and Brussels had threatened to file their complaints ahead of a dispute panel deadline Jan. 13.