US closer to trade dispute over Airbus

Date: 21/06/01

By Laurence Frost

THE US and the EU are one step closer to a trade dispute over state support for the new Airbus super-jumbo, after Washington demanded more information on the project's funding.

The US has rejected the European Commission's explanation of how the new A380 plane is to be financed, ahead of a crucial meeting with EU officials next month.

The increased tension comes as the European aircraft maker trounced US rival Boeing at this week's Paris Air Show by announcing 155 new orders worth around €15 billion - taking total sales to 299 aircraft this year. Boeing has been left on the tarmac, with no additions announced to its existing 121 orders.

The Union offered assurances in April that state loans would make up no more than 33 of the projected €14-billion development cost of Airbus - the limit set by a 1992 bilateral agreement on large civil aircraft projects.

But Washington now says the pledge does not go far enough. "It's no longer just the overall level of subsidies that counts," said a US official. "There are the international obligations of the WTO agreement on subsidies to comply with. "

Under the terms of the1994 World Trade Organisation deal, any government funding must be offered on commercial terms. US trade officials say royalty-based loans for the A380 - with repayments due if and when the project makes a profit - fall foul of those rules, disadvantaging Airbus competitors. "Anyone else on the market [for commercial loans] would have to start paying money back from the moment they borrow it," the same source said.

EU Trade Commissioner Pascal Lamy is playing down the significance of Washington's new demands. "We're ready, willing and able to discuss these issues at our meeting on July 17," said his spokesman, Anthony Gooch. "We'll be in a position to respond. "

The Commission believes US aircraft maker Boeing is receiving more subsidies than the 3 of turnover allowed by the 1992 bilateral agreement, as well as indirect subsidies from military budgets that breach trade rules. "Boeing has a maximum [subsidy level] and there are some indications they're exceeding those limits," said Gooch. "They receive support for the development of military planes from the Pentagon and then derive civil aircraft from them. "

Washington will also be examining whether EU research spending benefits Airbus unfairly. Research Commissioner Philippe Busquin this week announced the establishment of a new joint industry body to "optimise private and public resources" in research.

The Commissioner stressed his €1 billion aerospace research budget could not be used for product development. But he added: "We do want to see that technologies developed with support from the EU. . . are eventually taken up in sellable products and services. "

Any work that appears geared towards development of large passenger planes could be open to challenge, since it will be of little use to Boeing's long-haul strategy, based on a faster, smaller model.

One EU-sponsored programme is looking at the 'wake vortex' turbulence behind larger aircraft and its effects on airport functioning - an obvious factor in the marketability of the 650-seater Airbus. "If we did research on cutting the weight of an aircraft, for example, the EU would say that's an indirect benefit to Boeing," the US official said.

The US and the EU are one step closer to a trade dispute over state support for the new Airbus super-jumbo, after Washington demanded more information on the project's funding.