US, EU trade subsidy dispute sours

Relations between the US and EU have soured over a violation of an agreed pledge to resolve a decades-old dispute over subsidies for civilian aircraft makers within three months.

    Boeing makes civilian aircraft and executes defence contracts

    Washington and Brussels exchanged accusations, blaming one another for trying to renege on the agreed pledge to resolve the dispute.

    European Union Trade Commissioner Peter Mandelson, who became EU trade commissioner last autumn, and Robert Zoellick, the deputy US secretary of state who until recently was his country's trade representative, agreed on 11 January to secure "a comprehensive agreement to end subsidies to large civil aircraft producers" by April.

    Mandelson, who talked to Zoellick on the telephone on Friday, had concluded that an overall accord by 11 April was impossible given that the issues were so complex and politically sensitive and proposed extending the talks.

    Ready to continue

    Richard Mills, a spokesman for the office of the US Trade Representative, said on Saturday that the "EU keeps wandering from the table", adding that the US was ready to continue negotiating.

    Mills said Washington was ready for that but accused the EU of "manoeuvring" and straying from the 11 January agreement.

    Airbus says the public aid it gets
    from EU nations is not a subsidy

    In return, the EU denounced a US threat to revive a complaint at the World Trade Organisation over aid for aircraft maker Airbus, calling the move "premature and unnecessary".
    "I regret this unilateral action in breaking off" talks over government subsidies for aircraft giants Boeing and Airbus, Mandelson said on Saturday.
    "I fully understand the difficulties, but I think we could have overcome them with further effort," he said in a statement.

    EU officials said Mandelson wanted to cut launch aid - money to help Airbus get its A350 plane into production - if the US gave a "cast-iron" guarantee that the US states of Washington and Kansas would cut their subsidies for Boeing.

    Ruled illegal

    Mandelson also linked a deal on launch aid for Airbus to one covering Japan, where the wings of Boeing planes are made, and demanded that Boeing should get no money from the US Foreign Sales Corporation, whose export subsidies have been ruled illegal by the WTO but remain subject to "compliance" monitoring.

    Zoellick (L) and Mandelson are US
    and EU point men in the dispute

    US officials balked at the latter two conditions, saying they were not part of the original plan.
    The Boeing-Airbus dispute centres on subsidies to the two makers of commercial jetliners. Both sides have long claimed the other government's payments are illegal.

    Airbus concedes that public aid reduces its financing costs but argues it does not constitute a subsidy since it is repaid to governments with interest as well as a share of future aircraft royalties.
    The Europeans have long argued that aid for Boeing's military contracts amounts to illegal subsidies because it supports the company's civilian operations.

    EU officials said negotiations were complex because European and US financial support for aircraft makers was different in nature as well as timing and duration.



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