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U.S. seeks new pact with EU that bans aerospace subsidies

By David Bowermaster
Seattle Times aerospace reporter

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The 1992 agreement increasingly has come under fire from Boeing and the U.S. government because it permits European plane maker Airbus to receive low-interest government loans worth up to one-third of the cost of developing a new plane.

Boeing is technically eligible to receive such loans, too, but the U.S. government does not provide them.

"It's not a question of tweaking the 1992 agreement," said a U.S. trade official. "It's starting with a blank sheet of paper."

Sen. Patty Murray, D-Wash., who was briefed by the Office of the U.S. Trade Representative ahead of the talks, said in an interview this week: "I believe that our negotiators are going to really make it clear to the Europeans that we are serious about this and that Airbus is a mature company that no longer needs subsidies."

The issue has taken on particular urgency for Boeing since Airbus this month acknowledged published reports that it is considering launching a new airplane program in early 2005. Airbus has billions of dollars tied up in developing the 555-seat A380, which is due to enter service in 2006.

Boeing and its supporters do not want Airbus to receive a new infusion of government loans that it could use to quickly develop a competitor to Boeing's 250-seat 7E7, due to enter service in 2008. They also argue that the 1992 pact is out of date because Airbus now delivers more commercial jets than Boeing.

Airbus counters that U.S. defense and space contracts for Boeing amount to a form of subsidy.

A spokeswoman for the European Commission, the European Union's executive arm, said the commission would press for discipline of subsidies to both manufacturers.

"We have clearly said that we are open to rediscussing this agreement," Arancha Gonzalez said. "It's not just about us disciplining the direct support that Airbus gets without disciplining the Boeing support."

U.S. negotiators hope to work with EU officials toward a mutually acceptable replacement for the 1992 pact, but they have not ruled out unilateral action, the U.S. trade official said.
 
The 1992 agreement allows either party to pull out of the pact 12 months after providing formal written notice to the other side.

Murray, during a forceful speech in July, called on the Bush administration to unilaterally pull out of the 1992 accord, citing Europe's "massive, market-distorting subsidies" to Airbus.

The U.S. could also file an unfair-trade-practice complaint with the World Trade Organization over the government loans to Airbus. President Bush threatened such a move during a visit to Seattle last month.

Joel Johnson, vice president of international affairs for the Aerospace Industries Association in Washington, D.C., said the WTO has much stricter rules against subsidies than the 1992 bilateral.

Peter Allgeier, deputy U.S. Trade Representative (USTR), and John Veroneau, general counsel to the USTR, are leading today's negotiations on behalf of the Bush administration.

Peter Carl, the European Union's director general for trade, will be their counterpart.

How Carl and his European colleagues respond to the message delivered today by Allgeier and Veroneau will determine the next U.S. move.

That move is likely to be made at the end of this month, when U.S. Trade Representative Robert Zoellick is expected to meet in Washington with Pascal Lamy, the EU's top trade official.

Material from Reuters is included in this report.

David Bowermaster: 206-464-2724 or dbowermaster@seattletimes.com