Economy & Trade, Europe, Headlines, North America

TRADE: US, Europe Reach Deal on Aircraft Dispute

Emad Mekay

WASHINGTON, Jan 12 2005 (IPS) - The United States and the European Union have agreed in theory to resolve a trade dispute over their national aircraft manufacturers by halting industry subsidies.

"Today, I am pleased that the United States and the European Union have reached agreement on the terms of negotiation to end large commercial aircraft subsidies," said U.S. Trade Representative Robert B. Zoellick in a statement Tuesday.

The two sides have locked horns over their subsidies for large commercial aircraft makers – Airbus in the EU and Boeing in the United States. Within the three-month time frame, there would be both a "subsidies standstill" and a "litigation standstill".

Each side would refrain from taking additional steps in the World Trade Organisation (WTO) and from committing to any new government supports for large commercial aircraft.

"For the first time in this long-standing dispute, the U.S. and the E.U. have agreed that the goal should be to end subsidies," Zoellick said.

The U.S. official said that both sides agreed to use the definitions and framework of the WTO subsidies rules as the basis for an agreement. "This approach should also help us to multi-lateralise the effort over time," he said.

Boeing welcomed the deal in a statement and said that it will be a major "step toward ending subsidies to establish much-needed balance in the commercial aircraft market."

In October, the United States filed a complaint at the WTO over the EU’s subsidies to Airbus. The Europeans immediately retaliated by lodging a similar case alleging damages because of indirect U.S. subsidies to Boeing.

The U.S. says that the so-called EU "launch aid" loans, which can cover up to one-third of a new jet’s development costs, have helped propel French-based Airbus well past Chicago-based Boeing Co. to become the world’s top jet-maker. Now Airbus sells more planes than Boeing, with a market share of 54 percent in 2003.

The original U.S. complaint to the WTO charged that European governments provided loans to Airbus at much better terms than Airbus could get in the commercial market. Airbus has also benefited from European governments’ forgiveness of its debt.

The EU countered that Boeing also benefits significantly from research and development contracts from the National Aeronautics and Space Administration (NASA) and the U.S. departments of Defence and Commerce.

The economic bloc said that Boeing illegally benefits from tax breaks under the now-repealed Foreign Sales Corporations tax programme, as well as from research and development tax credits and financial incentive packages passed by the states of Washington and Kansas.

The EU had generally maintained that its own support for Airbus was necessary to protect a relatively new industry from its more mature competitor, Boeing.

The U.S. says that the NASA research is counterweighted by billions of dollars in research and development funds from the European Union. Washington also denies that it subsidies Boeing through defence procurements.

The dispute was closely watched internationally as the two sides dominate world trade and wield considerable influence on the shape of trade rules. Together, they share a trillion-dollar economic relationship.

The dispute also threatened U.S./EU cooperation on other trade issues. Both worked together to launch the current Doha WTO negotiations, and they are also in talks for agricultural trade changes that will impact millions of farmers across the globe.

"Today’s agreement creates a positive atmosphere for more work to strengthen the economic partnership between the EU and the U.S., which is vital for both of us," EU Trade Commissioner Peter Mandelson said in a statement.

"I hope our negotiations in the next three months will lead to an agreement ending subsidies to development and production of large civil aircraft," Mandelson said.

Airbus has its design and manufacturing facilities in France, Germany, the United Kingdom, and Spain as well as subsidiaries in the U.S., China and Japan. Boeing is based Chicago, Illinois, with its largest production facilities near Seattle, Washington.