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U.S. and EU plane talks go nowhere

By Dominic Gates
Seattle Times aerospace reporter

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Meeting for five hours in Brussels, Belgium, top U.S. and European trade negotiators could not even agree on what is and is not a subsidy, much less how to move forward.

"The status quo is not acceptable," said lead U.S. representative John Veroneau in a media teleconference after the talks, during which the U.S. demanded an end to European government loans to Airbus.

"We are not ready to unilaterally disarm," said Arancha Gonzalez, a spokeswoman for the trade office of the European Commission, the European Union's executive arm.

Veroneau laid out the American stance as straightforward: "ending subsidies," by which the U.S. delegation means European government loans to Airbus.

But the Europeans insist on a broader definition of the word subsidy, encompassing some defense contract deals and military research-and-development funding they say benefit the commercial side of Boeing's business.

They also lump Washington state's tax breaks to Boeing in that category.

"It's fine to say we need to eliminate subsidies, but we have to have an agreement on what subsidies are," said Gonzalez. "If the name of this game is just about Airbus eliminating its reimbursable loans, this is not something we can accept."

In careful diplomatic language, Veroneau, general counsel to the U.S. Trade Representative, described the talks as "useful and frank" but said he couldn't go so far as to call them "constructive."

He said the United States was focusing on two options: either dramatically changing the 1992 bilateral accord that governs manufacture of large commercial aircraft or, if that fails, going to the World Trade Organization.

Veroneau said his boss, U.S. Trade Representative Robert Zoellick, will decide the next step.
 
At the news conference, Veroneau tried to deflect Airbus arguments by saying Boeing's government-procurement contracts and research-and-development funding for its military business units are not subsidies.

Asked about state aid Boeing will get to build its new 7E7 jet in Everett, Veroneau said the Europeans had brought up the state's $3.2 billion tax-break package.

"It's an issue that we see somewhat differently," Veroneau said.

The European Commission's Gonzalez confirmed that both direct and indirect subsidies to Boeing are under the microscope.

"The support that the state of Washington will provide for the 7E7 is a source of worry [for the EU], and it is a source of worry for Airbus also, I can tell you," Gonzalez said. "We have raised that, as well as raising the Japanese support, $1.5 billion in loans; and the support from the state of Kansas; and also Italy," she said, referring to other 7E7 participants.

"We are for disciplining state support," said Gonzalez, "but it has to be both of us."

Sen. Patty Murray, D-Wash., called the outcome of yesterday's talks "disappointing." She disputed the comparison of the state's 7E7 package with the loans Airbus received in advance to develop its new superjumbo A380 jet.

"There's a big difference between the tax incentives that Washington state offered to Boeing and the launch aid or the direct cash payments from European governments to Airbus," Murray said. "Boeing has never received a cash advance to build a new plane."

Veroneau said no specific timetable for the next meeting on the subsidy issue had been agreed to, though "we will continue this conversation."

Zoellick will meet with his European counterpart, Pascal Lamy, in Washington, D.C., at the end of the month.

Where the two sides go now on the subsidy subject will be one of the hottest topics on the agenda.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com