Subsidy dust-up hits WTO

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Manufacturing News, Source : The Manufacturer US
Published : 10 Jun 2005 16:22

An “entente discordiale” has developed between the United States and Europe over subsidies to their respective aircraft manufacturers Boeing and Airbus, after talks to resolve the dispute broke down.

The Bush administration announced its intention to refer the matter to the World Trade Organization. The European Commission is expected to bring a counter case to the WTO. The case is expected to be the largest ever heard by the WTO, involving up to $40 billion in government aid.

Talks have been under way since January, aiming to put an end to all government subsidies to Boeing and Airbus and establish “fair market competition” in the development and production of large civilian aircraft in Europe and the United States.

The Europeans upset the United States trade representative, Rob Portman, however, by offering a compromise to cut about a third of subsidies for a prototype airliner, the Airbus A350, in exchange for agreement by the United States to similar reductions in support of Boeing jets. The US, however, is insisting that Europe ends all subsidies to Airbus, including what it calls “launch aid”—low-interest loans to assist in the development of new aircraft.

European trade officials claim, on the other hand, that the United States has paid Boeing “massive illegal subsidies that damage Airbus,” through tax benefits and subsidized research and development. The dispute seems to have come to a head because the A350, unlike the super jumbo A380, is a direct competitor with Boeing’s new 787 Dreamliner.

“Unfortunately, at this point,” Portman said, “the EU is no longer willing to hold off on launch aid, and has only proposed to reduce subsidies, not end them.” He did say that the US would still prefer a settlement, however. “We still believe that a bilateral negotiated solution is possible.”

Airbus, meanwhile, announced a delay of two to six months in delivering its new airliner, the A380, to several airline customers. The reasons for the delays were unspecified.

Air France announced that Airbus had told it that the A380 airliners it had ordered would be late. The first of the airliners was originally to be delivered in April of 2007. Air France had ordered 10 A380s, with an option for more.

Australian airline Qantas also said that delivery of A380 airliners would be delayed by at least six months, from the original delivery date of October 2006 to April 2007. Singapore Airlines had previously announced that the delivery of its A380s would be delayed to the last quarter of 2006. The delays could lead to substantial financial penalties for Airbus for late delivery.

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