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U.S. tells European Union it wants to end pact permitting Airbus aid

By Bloomberg News

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"We are looking to replace the 1992 agreement with one that would eliminate any new subsidies," said Richard Mills, a spokesman for the U.S. Trade Representative's Office.

Negotiations to replace that agreement, which permits government aid to aircraft makers, will take place between U.S. and European trade officials next month. U.S. and European officials met in Brussels in July to begin working out their differences.

The European Union is willing to change the pact, the EU's executive said yesterday. However, the European Commission said talks between the parties must focus on two issues: direct support, which it said European governments give to Airbus through loans; and indirect support, which it said the United States gives to Boeing through government contracts and tax subsidies.

"We will be prepared to check again whether the 1992 agreement is still sufficient to cover all the direct and indirect types of state aid and subsidies to both of these big aircraft manufacturers and to make changes where appropriate," European Commission spokeswoman Amelia Torres told a daily briefing.

President Bush complained about European subsidies for Airbus on Friday in Seattle and threatened to take a case to the World Trade Organization (WTO) if they were not ended.

Boeing says Airbus is receiving unjustified subsidies from European governments. Airbus says it receives loans that are within the limits of the 1992 U.S.-European agreement to gradually reduce state aid.

The new rhetoric on aircraft subsidies shows how the Bush administration is moving to help Boeing and protect aerospace jobs in election-year battleground states such as Washington and Pennsylvania, said Richard Aboulafia, an aerospace analyst at the Teal Group in Fairfax, Va.

"There is no question that Boeing and the U.S. are in the right," he said. "But it's difficult to take action. It's possible that this will have legs" after November's election, "but it's dependent on so many other matters."

Democratic lawmakers have called for a WTO complaint since April of this year. Phil Singer, a spokesman for Democratic presidential nominee John Kerry, said the White House has taken a "go-slow approach" to raising the complaint.

Without the bilateral deal as cover, the European Union and Airbus would be subject to the discipline of the WTO, which provides for less scope for governments to subsidize exporters. The WTO has ruled that both the Brazilian and Canadian governments are guilty of unfairly subsidizing their aircraft makers.
 
Boeing shares rose $1.23, or 2.5 percent, to $50.95 in New York Stock Exchange trading yesterday. The stock price has increased 57 percent in the past year.

Information from Reuters is included in this report.