Trade Tensions Flare Over Aid to Airbus

Airbus on Thursday launched construction of its new A350, a mid-sized airliner to rival Boeing’s 787 Dreamliner, and tensions immediately flared in the transatlantic trade dispute over aircraft subsidies.

In what European officials described as an olive branch extended to Washington, Airbus shareholders gave the go-ahead to build the jet without firm funding pledges from EU governments.

But U.S. Trade Representative Rob Portman’s office rejected the European overture as inadequate and said the U.S. would press forward with litigation at the World Trade Organization. A spokesman for Portman’s EU counterpart, Trade Commissioner Peter Mandelson, called the American reaction “surprising.”

The escalating trade row began when Washington last year tore up a 1992 pact on aircraft subsidies and filed its WTO complaint against EU government funding for Airbus jet programs. Brussels retaliated with a countersuit citing U.S. and overseas tax breaks and research subsidies for Chicago-based Boeing Co. and its suppliers.

European Aeronautic Defense & Space Co., which owns 80% of Airbus, said Thursday that it had agreed to put government funding for the A350 program on hold until 2007 as long as there was a “credible prospect” of a negotiated settlement and if Boeing did likewise.

European Aeronautic spokesman Rainer Ohler said the company recognized that a settlement deal “might or might not” ultimately include launch aid for the A350 from Airbus’ four supporting governments -- France, Germany, Britain and Spain.

Britain said no government funding commitments had been made. “We haven’t given anybody any money and we’re still deciding whether we will,” Department of Trade and Industry spokesman James Thomson said.

But the European message was mixed. The French version of the announcement said governments had “responded favorably” to Airbus’ request for a reported 1.5 billion euros ($1.8 billion) in A350 funding, whereas the English version spoke only of “general support” from the four nations.

In a tersely worded response, Portman’s spokeswoman, Christin Baker, said Washington could “take no comfort from any offer to postpone the actual payment of the launch aid these countries have already promised to provide.”

She added: “It is clear that the EU countries are unwilling to stop subsidizing Airbus. Therefore, we will continue to push ahead with our WTO case.”

The next step in that process probably will take place today, when U.S. diplomats will ask the Geneva-based trade court to appoint a panel to adjudicate its dispute with Europe.

Mandelson’s spokesman, Peter Power, reacted angrily to the U.S. comments, insisting that no government aid had been promised. “We clearly have moved substantially on this,” he said. “But is there a U.S. will to engage?”

Power added: “In these circumstances, and given the continuing subsidies available to Boeing for the launch of the 787, the statement of the USTR is surprising.”