Digging in for a new trade war with Washington, the European Union filed a counter complaint today at the World Trade Organization claiming that U.S.-based Boeing Co. receives illegal government aid.
BRUSSELS, Belgium — Digging in for a new trade war with Washington, the European Union filed a counter complaint today at the World Trade Organization claiming that U.S.-based Boeing Co. receives illegal government aid.
EU Trade Commissioner Peter Mandelson said he had little choice but to retaliate, saying the United States decided to close the door on reaching an amicable solution to the standoff between the two aircraft makers, France-based Airbus and Boeing.
“The path of negotiations has been closed,” Mandelson said, laying the blame for the new trade war at the feet of the Americans after the Bush administration decided late Monday to abandon negotiations that began in January and take the EU to a legal panel at the WTO.
The WTO confirmed today that it had received complaints from both the United States and EU.
Mandelson said the WTO action could only rupture fragile EU-U.S. ties, adding that taking the talks to the WTO would accomplish nothing.
“America’s decision will, I fear, spark the biggest, most difficult and costly legal dispute in the WTO’s history,” he said, adding that it would be “manifestly expensive and (involve) quite destructive litigation.”
In announcing the U.S. decision late Monday, U.S. Trade Representative Rob Portman said the Bush administration felt it had to act because of preparations being made by EU member nations to commit $1.7 billion (1.4 billion euros) to Airbus for developing a new airplane, the A350, which is seen as a direct competitor to Boeing’s new 787 Dreamliner in the market for midsize, long-distance jets.
Mandelson said the U.S. move was ironic because the WTO action now opens the door for EU governments to feed Airbus the aid it needs to launch the new model.
“If the Americans had opted for a deal I offered on the table, and accepted a negotiated settlement, they would have immediately seen a sharp reduction” in launch investment, Mandelson said. “This will take years to resolve and in the meantime it’s open to Airbus to receive any amount of launch investment from member states prepared to make that investment.”
Analysts were concerned that any WTO-imposed cuts in aid to the two companies could result in higher ticket prices for travelers.
“If there are fewer subsidies for manufacturers, that will transfer into higher costs for carriers and, ultimately, the traveling public,” said aviation analyst Richard Aboulafia of Fairfax, Virginia-based Teal Group.
Aboulafia said less financing from governments could mean fewer new cost-saving technologies and fewer new planes.
Airlines themselves “are keeping their heads down” as the Boeing-Airbus spat continues, Aboulafia said, because they don’t want to step on the toes of their suppliers, from whom they also receive sizable financing.
Mandelson said he had offered Friday “to negotiate a 30 percent reduction in launch investment available to the A350 in return for a similar offer for Boeing.” But U.S. officials viewed the offer as a step back from an earlier goal to eliminate all subsidies.
“We still believe that a bilateral negotiated solution is possible, but the negotiations won’t succeed unless the EU recommits to ending subsidies,” Portman said Monday.
Mandelson said any Airbus investment would be repaid to governments, unlike aid given to Boeing.
“Nothing of the like exists in respect of Boeing, not one cent, not one dollar has to be paid back by Boeing,” he said.
Mandelson also said it was more than coincidence that the U.S. decision came just ahead of the Paris Air Show next month, where Airbus was to announce the launch aid for the A350.
“Obviously absolutely central to what Boeing is doing is to undermine the launch and development of the A350,” he said. “So Boeing can rain on Airbus’s parade at the Paris Air Show.”
The A350 will compete against Boeing’s 787 Dreamliner, a mid-size, long range plane, which seats between 200 and 300 people and is expected to be available for delivery in 2008. The A350 won’t be available until 2010.
Airbus’ owners, the European Aeronautic Defence and Space Co. and Britain’s BAE Systems PLC, warned that the litigation was “in the interest of none of the stakeholders,” and called Boeing’s 787 “the world’s most subsidized airline ever.”
“Boeing has amassed more than $5 billion in government subsidies to pay for its development and production, through U.S. and foreign government R&D funds, tax relief schemes and launch aid. New subsidies are being added every day,” the companies said. “But for these subsidies, Boeing could not have launched the 787, which is currently being dumped on the market at unprecedented low prices.”
The moves reactivate the legal process at the WTO that was frozen when the EU and the U.S. entered negotiations with Washington at the beginning of the year. Mandelson said it could take “years to resolve” the standoff but it would likely result in a legal stalemate.
“I predict the outcome will not be clear, won’t be clear-cut and at that stage after all that expense in time, effort and money, we will have to come back and negotiate,” he said.