US expected to claim EU aircraft subsidies as high as 200 bln usd

US expected to claim EU aircraft subsidies as high as 200 bln usd

	Published : Tue, 24 Jul 2007 16:22 By : Agencies Print this Story

WASHINGTON (Thomson Financial) - The US this week is expected to argue that the European Union has sunk more than 200 bln usd worth of illegal subsidies to its civil aircraft industry, the latest charge in a bitter dispute in which both sides have asked for subsidy relief from the World Trade Organisation.

A WTO dispute settlement panel will hear arguments on Wednesday and Thursday about the extent to which the EU subsidizes Airbus Industries.

In a Geneva press conference today, EU officials who have seen the still-confidential US submission to the panel said the US is charging that EU subsidies are as high as 205 bln usd. EU officials scoffed at this number, saying this amount is more than eight times the capitalisation of Airbus' parent company, the European Aeronautic Defence and Space Company (EADS).

'The 'estimate' is completely unrealistic,' an EU official said, adding that the US reaches this number by compounding interest on subsidies dating back 40 years ago, many of which have long been repaid.

A source with Boeing declined to comment on the exact US estimate, but noted that US officials said in March that Airbus subsidies are 'well in excess' of 100 bln usd.

Robert Novick, a Washington-based adviser to Boeing, said that regardless of the exact level, it is clear that European launch aid is large enough to affect the global industry.

'Whatever the value of launch aid, it would have had an impact on the financial performance of Airbus because at the time these planes couldn't have been launched on the same terms without it,' he said.

At the heart of the US case is an argument that the EU offers low and zero-interest rate loans that Airbus uses to launch new products, and which only need to be repaid after a successful launch. The US case focuses on 'launch aid' given to the A380, A340-500/600, and A330-220 aircraft, and says the WTO needs to see these aid packages as illegal subsidies.

The EU has argued in contrast that Airbus repays launch aid to the European governments that provide it, and notes that US subsidies to Boeing in the form of free government research and various federal and state tax breaks are never repaid by Boeing.

Charles Hamilton, a Washington-based trade consultant to Airbus, argues that the US is 'trying to present non-repayable US funding to Boeing as

preferable to repayable European loans to Airbus.'

The EU has filed its own WTO case against US subsidies to Boeing, which lags the US case by a few months. EU officials said today that if they used the US method to calculate the value of US subsidies to Boeing, it could exceed 300 bln usd.

The EU has also argued that both sides reached an agreement in 1992 that governed aircraft subsidies, which the US pulled out of in 2004 after charging that the EU violated that deal. The EU has rejected that charge.

The result of the WTO cases could end up hurting both companies if they force the US and EU to pare back subsidies to the companies. Nonetheless, sources on both sides indicated that a settlement does not appear to be forthcoming.

Hamilton said as far as Airbus is concerned, settlement talks could only begin with a US acknowledgement that US subsidies help Boeing. But he said the US and Boeing instead appear determined to press Airbus in the WTO, possibly as a way to turn attention away from the competition it faces in Airbus.

'That is the Boeing agenda - to demonise Europe as a subsidiser and to excuse its loss of ground to Airbus over time as a result of something other than competition on the merits,' Hamilton commented this week.

Orders for new Airbus planes have exceeded orders for Boeing planes for five of the last six years, although more orders were placed for Boeing planes in 2006. Deliveries of Airbus planes have also exceeded Boeing deliveries in four of the last five years.

However, sources on the US side say the US has always been open to negotiating a settlement, but cannot because European Union officials have not been given a mandate to start these talks. In the meantime, US officials are expecting to win their case against the EU.

'The record is clear that Airbus has benefited from a long history of subsidies from European governments,' US Trade Representative Spokeswoman Gretchen Hamel said. 'We remain confident that the WTO will find the subsidies to be inconsistent with WTO rules.'

Sources close to the US case said that after this week's hearings the case will be mostly in the hands of the WTO panel. A preliminary WTO ruling in the US case against the EU is expected by late October, and a final decision by mid-December.

The dispute panel hearing the EU case against the US will convene again in November, and is expected to reach a decision early next year.

pete.kasperowicz@thomson.com

pik/wash/gp

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.