WTO Is Asked to Review Subsidies
The U.S. and Europe moved a step closer Tuesday to a multibillion-dollar trade war after both sides asked the World Trade Organization to review complaints accusing each other of giving billions of dollars in improper government aid to Boeing Co. and Airbus.
Citing an impasse after five months of negotiations, U.S. and European trade officials formally requested that the WTO convene a panel to resolve the long-simmering dispute between the world’s largest makers of commercial aircraft.
The action came after a weekend of testy exchanges across the Atlantic as trade officials accused each other of negotiating in bad faith.
The U.S. wants the European Union member countries to stop providing low-interest government loans to help Airbus develop new civilian aircraft, while the EU wants the U.S. to stop giving Boeing tax breaks and research and development assistance.
“The U.S. wants a trade war,” said Anthony Gooch, a spokesman for the European Union.
For their part, U.S. trade officials said they were forced to resume their complaint with the WTO because the EU was only proposing to “reduce subsidies, not end them,” said U.S. Trade Representative Robert Portman. “It forced our hand.”
Airbus, based in Toulouse, France, surpassed Chicago-based Boeing as the world’s largest aircraft maker in 2003.
A WTO panel review would set in motion a complex trade dispute that could financially hobble the aviation industry, analysts said. Sanctions against either aerospace company also could devastate its subcontractor base and realign the industry.
“There is a huge amount of money at stake and possibly the survival of a company,” said Gary Hufbauer, a senior fellow at the Institute for International Economics in Washington.
Boeing is the nation’s largest exporter and purchases goods from thousands of suppliers, while Airbus is one of the largest employers in Europe.
But the WTO review could take several years because of its complexity, analysts said, and the trade organization must also decide whether it has to appoint one or two panels because there are two complaints.
Considering the stakes, both U.S. and European trade officials did not rule out the possibility of an agreement even as the dispute winds through the WTO review process. “We still stand ready to negotiate,” said Richard Mills, spokesman for the U.S. trade representative’s office.
Although the dispute over government subsidies for large aircraft has simmered for three decades, Boeing pressed U.S. officials last year to complain about Airbus subsidies in order to delay the development of a new Airbus jetliner, analysts said.
Boeing says Airbus no longer needs government aid because it is now the largest commercial aircraft maker.
Airbus has applied for about $1.7 billion in aid from several European countries so it can develop the A350, which would compete against Boeing’s 787, a fuel-efficient 250-passenger plane slated to enter service in 2008. Boeing executives said the low-interest loans, which don’t have to be paid back if the aircraft fails to make a profit, would give Airbus an unfair advantage in pricing.
After filing dueling trade complaints with the WTO last fall, both sides agreed in January to negotiate a settlement during a cooling-off period.
The talks apparently fell apart Friday when Peter Mandelson, the EU’s chief trade negotiator, proposed slashing by one-third the launch aid for the A350 in return for a similar cut in financial aid for the 787. U.S. officials have insisted on cutting all launch aid, which European officials say is unreasonable.
“I’m disappointed that the United States has chosen confrontation with Europe,” Mandelson said. “The WTO has better things to do with its time than referee a grudge fight.”
Meanwhile, the Europeans alleged that Boeing had received billions in subsidies from the federal government in the last decade and that the Japanese government was funneling about $1.6 billion to Japanese companies making parts for the 787.
Hufbauer said these were merely the latest moves in a well-calculated negotiating tactic.
The U.S. has asked for a special meeting of the WTO on June 13 when it will make a formal request to convene a panel. That date is the start of the Paris Air Show, where Airbus is reportedly planning to announce that it is going ahead with the A350 program.
Hufbauer believes the dispute eventually will be settled before the WTO takes any action.
Robin Bew, chief economist for the Economist Intelligence Unit, a London economic analysis firm, said the WTO also might want the dispute to be resolved.
If the WTO rules in favor of one party, he said, it is highly possible that the loser would refuse to abide by the decision, given the importance of its aircraft industry. That would be a huge blow to the WTO, which has already had a number of high-profile cases drag on for years because countries have refused to bring their trade practices into compliance.
“We’d like to see it settled out of court because it’s such a political hot potato,” Bew said.
Shares of Boeing rose 88 cents Tuesday to $63.90.
Times staff writer Evelyn Iritani contributed to this report.
