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EU, U.S. talks over government subsidies in nose dive

By David Bowermaster
Seattle Times aerospace reporter

U.S. Trade Representative Robert Zoellick

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A high-stakes dispute over government loans to airplane maker Airbus reached a tipping point yesterday when top trade officials from the United States and Europe failed to find common ground.

According to sources briefed on the talks, U.S. Trade Representative Robert Zoellick and European Union trade minister Pascal Lamy could not bridge their differences during what was widely viewed as the last, best chance to find a compromise.

"Any chance of an easy solution probably ended today," said a source close to the discussions.

The issue is coming to a head as Airbus sketches out plans for a jet to compete with Boeing's 7E7, which will enter service in 2008. Boeing fears Airbus will receive new loans to speed the plane's development.

Zoellick conveyed to Lamy the U.S. frustration with what it considers European intransigence on the issue. He repeated a warning from President Bush that the United States could file an unfair-trade-practices complaint at the World Trade Organization if the loans continue.

	EU Commissioner for Trade Pascal Lamy

"We will continue to consult with domestic stakeholders and the Congress, along with officials in Europe, and we will soon make a determination as to next steps," Zoellick spokesman Richard Mills said in a statement.

Boeing expressed support for Zoellick's stance. "We remain confident that the U.S. government will take the appropriate action to see that future competition isn't hampered by market distorting subsidies," said Dick Dalton, a Boeing spokesman. "Launch aid from European governments to Airbus needs to end now."

Washington Sen. Patty Murray had a blunter reaction. "We've given Europe multiple opportunities to engage, and they've refused to respond. The time has now come for the United States to stand up and say enough is enough, we won't play this game anymore," Murray, a Democrat, said in a statement.

Boeing Chairman Harry Stonecipher has complained repeatedly that European government loans give Airbus an unfair edge in the market for commercial jets.

The loans are allowed under a 1992 agreement between the United States and Europe that permits governments to extend launch aid worth up to one-third of the cost to develop a new jet.

Boeing and the U.S. government say the 1992 agreement is outdated, particularly because Airbus delivered more airplanes than Boeing in 2003.

"The hope for a renegotiation of the 1992 agreement is dwindling. It actually now looks as though that would be quite difficult to achieve," Anthony Gooch, a spokesman for the European Commission's Washington delegation, said after the meeting.

Boeing and the United States argue that low interest rates and lax loan-repayment terms enable Airbus to quickly develop new planes to compete with Boeing jets at little or no financial risk.

This is a major concern as Boeing develops the 7E7, a 200- to 250-seat wide-body jet.

Boeing anticipated the 7E7 would dominate that market niche for several years because Airbus has been spending heavily on the 555-seat A380, which will enter service in 2006.

But Airbus this week confirmed rumors that it may launch another plane, the A350, which would hold 270 passengers.

Chances of a compromise looked dim even before yesterday's session.

Airbus President Noël Forgeard took an adversarial tone when asked about the dispute earlier this week by a French business newspaper.

Forgeard said the complaints were "a massive campaign of untruths, whose principal aim is to protect the 7E7's enormous subsidies," most notably the $3.2 billion of tax incentives Washington state pledged to Boeing to keep 7E7 production in the state.

Bush threatened in August that the United States could file a WTO complaint against Airbus if a compromise on the loans could not be reached.

Lamy warned yesterday that Europe would retaliate quickly. "If the U.S. were to do this, we would in turn litigate against the U.S., and no doubt the 7E7 financing would be at the front of this dispute," Lamy said before he met with Zoellick.

Information from Bloomberg News is contained in this report. David Bowermaster: 206-464-2724 or dbowermaster@seattletimes.com

Copyright © 2004 The Seattle Times Company

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