Trade Showdown Over Boeing, Airbus Defused

The U.S. and Europe averted a multibillion-dollar trade war -- at least for now -- by agreeing not to seek formal action from the World Trade Organization over claims of unfair government subsidies to rival aircraft makers Boeing Co. and Airbus.

Instead, trade representatives for the U.S. and Europe said Tuesday that they would hold three months of talks to resolve their complaints.

The handshake came just days before the deadline to bring the matter before the WTO, which would have reviewed the case and possibly issued remedies such as allowing one side or the other to impose trade sanctions. The agreement calls for negotiations to “eliminate different types of subsidies and to establish fair market-based competition” between the two aircraft makers, said European Union Trade Commissioner Peter Mendelson.

As part of the deal, the two sides agreed not to provide Airbus or Boeing with new aid for large civil aircraft development or production while the talks are underway. Still, the current government assistance that is at the center of the dispute would remain intact during negotiations. And if the talks fail, the complaints could return to the WTO.

U.S. Trade Representative Robert B. Zoellick acknowledged that there was still “much work to be done if we are to be successful in negotiating an ultimate agreement.”

If the talks are protracted, Tuesday’s accord could prevent the European Union from helping Airbus develop the A350 jetliner, a competitor to Boeing’s 7E7 that is under development.

Analysts said Boeing pressed U.S. officials to complain about the Airbus subsidies as a way to delay the A350. Despite the U.S. action, however, Airbus said last month that it had already begun marketing the A350.

Boeing contends that Airbus has received about $40 billion in government subsidies over the years, including production assistance and below-market interest rates on loans.

In October, the U.S. complained to the WTO about the aid, as Zoellick vowed “to level the playing field for American workers and companies.”

Airbus shot back immediately, contending that Boeing got plenty of government assistance itself in the form of U.S. tax breaks and subsidies for research and development.

Airbus, headquartered in Toulouse, France, surpassed Chicago-based Boeing as the world’s largest commercial aircraft maker in 2003. European Aeronautic Defense & Space Co. is the Netherlands-based consortium that owns 80% of Airbus.

Boeing is the biggest employer in Southern California, with about 36,000 workers.

In an interview last month with The Times, Boeing representatives noted that they were looking forward to working with Mendelson, who just weeks earlier had become the new trade representative for the EU. “There is always more hope with a new person,” said Robert Novick, a lawyer for Boeing.

Boeing Chief Executive Harry Stonecipher said in a statement that his company was “encouraged by the good faith displayed by both governments, as evidenced by their understanding not to provide additional development and production support.”

John Douglass, who heads the Aerospace Industries Assn. of America, lauded the agreement: “The specter of a trade war has considerably diminished with this decision.” Continuing before the WTO “would have damaged the industry on both sides of the Atlantic,” he said.