Airbus Subsidies Focus of Bitter Trade Dispute Between U.S., Europe
The United States and its Western European allies are on a collision course over what a senior Administration official calls the most important transatlantic trade dispute for the rest of this decade: U.S. complaints that massive European subsidies to Airbus are an unfair trade practice that threaten a thriving American industry.
At stake is Europe’s dream of regaining its position as a major supplier of civilian airplanes to the world; its attempt to bridge the technology gap between itself and the United States and Japan, and the future in civil aviation of McDonnell Douglas Corp., a major U.S. manufacturer that fell behind Airbus in 1986 in orders and may be forced out of the business entirely if its newest entry fails to pick up steam.
As a result of increased Airbus orders and the threat that two new models announced in June will cut into future sales of McDonnell’s still-unbuilt MD-11 wide-body jet, the St. Louis-based company “is fighting to survive in this cutthroat business,” McDonnell Douglas Corporate Vice President James E. Worsham said at congressional hearings last June.
Currently, the U.S. makers--Boeing Co. and McDonnell Douglas--hold the dominant position in the civilian aircraft industry. The Europeans are fond of pointing out that, between them, those two companies hold about 75% of all orders for civilian airplanes.
Complaints Threatened
Boeing, the clear No. 1 maker, makes 56% of all civilian airplanes sold in the world. But the effects of close to $9 billion in subsidies that four European governments have given Airbus over the past 17 years will not be fully felt for another 5 to 10 years--when the U.S. industry may be behind the eight ball. “By then, it is too late to fix it,” said a senior Administration official.
The issue is coming rapidly to a head, with Boeing and McDonnell Douglas putting pressure on the Reagan Administration to file a broad-based trade complaint against the four countries--France, Great Britain, Spain and West Germany--that have formed Airbus Industrie.
In addition, the U.S. companies are threatening to file narrower trade complaints accusing the four European governments of illegally subsidizing Airbus and the consortium of “dumping” the planes in the U.S. market at less than it costs to produce them.
The broader trade complaint could bring a presidential decision to impose a wide variety of sanctions on the Europeans. It would put the stick of U.S. retaliation behind negotiations that the United States currently is holding with the Common Market and the nations that belong to the consortium.
The industry would like President Reagan to initiate the complaint, as he has in other cases over the past 27 months. If not, the companies will file the complaint themselves, along with more narrowly based cases.
It is this combination of a complaint along with charges of dumping that led President Reagan to impose sanctions on Japan last year in a semiconductor trade dispute.
Retaliation Certain
Industry sources said if there is no progress in ongoing talks, they want to file the subsidy and dumping cases this winter so that the decisions will come out in the heat of the 1988 presidential campaign to intensify pressure on the Europeans.
While they have their trade guns at the ready, industry sources emphasized that they don’t want a confrontation because of the certainty that U.S. trade sanctions would trigger European retaliation. “It would be a real trade war. No one wants it to come to that,” said an industry source.
With the stakes so high, both sides are playing hard ball. According to congressional testimony, European airlines threatened to cancel orders for McDonnell Douglas planes if that company continued pressing the Reagan Administration to move in the trade dispute.
McDonnell Douglas Chairman Sanford D. McDonnell bowed to that pressure last February, asking Deputy U.S. Trade Representative Michael B. Smith and Commerce Undersecretary Bruce Smart to ease the pressure they were putting on the Europeans. This move angered Smith, Smart and influential senators who had been energized on the issue by McDonnell.
Now, however, he is pushing once again for action.
But Administration officials and industry representatives said the United States and the Common Market, which is negotiating for the four-nation consortium, remain far apart after a series of talks here and in Europe over the past two months. “There is a massive gulf,” said an industry source.
“On a scale of 10, we are 9 apart. We are nowhere near a settlement. The U.S. government is a long way from an agreement with the (European) Community on this one,” said the senior Administration official.
The official suggested that there is no need to go ahead with high-level talks scheduled for February unless there is progress in lower-level talks this month in reducing the basic philosophical differences between the two sides. The high-level talks would be between U.S. Trade Representative Clayton Yeutter and Common Market Trade Commissioner Willy de Clercq.
‘Fundamental’ Problems
Common Market officials, who took a more optimistic view than the Americans of talks Yeutter and Smith held with their European counterparts last month, were stung by those comments. Francoise Bail, a spokeswoman for the Common Market, said in Brussels that there has been progress in the talks even though “there are fundamental problems which still divide us. “We are determined to continue to negotiate,” she said.
According to the senior Administration official, there are three main issues:
The Europeans insist that the consortium must have the right “forever” to continue subsidizing Airbus to make sure it survives.
Members of the consortium, particularly West Germany, are demanding special coverage that would insulate the Airbus from exchange rate fluctuations, which is “unheard of in trade negotiations of this sort.”
“They want the ultimate bailout clause” so they can save Airbus “if it is threatened with disaster.”
