| Author (Person) | Chapman, Peter |
|---|---|
| Series Title | European Voice |
| Series Details | Vol.10, No.27, 22.7.04 |
| Publication Date | 22/07/2004 |
| Content Type | News |
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Date: 22/07/04 IT IS election year in the United States. Scandal-hit Boeing is struggling to regain ground on its European rival Airbus and both companies are pinning their hopes on risky new models. Perhaps unsurprisingly, the rhetoric about airline subsidies has taken off. Peter Allgeier, deputy US trade representative, was flying into Brussels this week to discuss aerospace subsidies. The subject has been hotting up since the beginning of the year when Boeing's new chairman Harry Stonecipher characterized the Airbus approach to developing a new plane as: "(a) We have decided to launch a new airplane; and (b) we are sending our guys over with a truck to pick up the cash." Since then, the 68-year-old, recruited to restore the tarnished reputation of Boeing after a series of scandals led to the loss of big military contracts, has mobilized leading US politicians to launch an assault on subsidies for civil aircraft that European Union countries give to the Toulouse-based Airbus consortium. Their first target is a 1992 EU-US agreement which sets rules on government aid for manufacturers. Boeing's supporters - led by Patty Murray, a Democrat senator for Washington State - claim this accord allows "massive, market-distorting subsidies" to Airbus. Although Boeing's corporate HQ lies a thousand miles eastwards in Chicago, Murray is keen to stand up for jobs at the company's huge assembly plants in Seattle. Under the existing "agreement on trade in large civil aircraft", European governments can provide loans to Airbus of up to 33% of the cost of developing a new plane. The same limit applies to US loans for Boeing but the latter receives no such federal loans. However, Airbus and the European Commission contend that Boeing's development of commercial aircraft is subsidized by US defence contracts. "If you look at Boeing's R&D, it is peanuts compared to what Airbus spends," said one aide to European Trade Commissioner Pascal Lamy. "It is a signal that they are getting it from NASA and the Department of Defence." The US Trade Representative Robert Zoellick is still on the offensive. He declared a fortnight ago that "if there was ever justification in 1992 or earlier for a start-up industry, that has long been overcome". Last week, Secretary of Commerce Donald Evans entered the dogfight, telling reporters that the Bush administration is considering the best way of confronting the issue of subsidies and whether to press Europe to revisit the 1992 agreement. "I think it's too early to say, but we're talking with [Boeing], mulling about the issue. We share their concern, we think they're legitimate concerns," he said. But who would gain from upsetting the status quo on subsidies? In theory, the Americans could try to tear up the 1992 aviation agreement to take advantage of Airbus's weakness in competing with the energy-efficient 7E7 'Dreamliner', Boeing's new mid-sized plane. Senator Murray and her supporters gamble that the EU planemaker will have to invest billions to create an alternative 200-250 seat model, replacing its creaking A330. Getting rid of the 1992 accord or watering it down could make it far more difficult for Airbus to do the necessary R&D - which would be to Boeing's clear advantage. The benefit would be magnified if Airbus's A380 superjumbo proves to be an expensive flop and fails to generate the profits hoped for. Airbus plans to invest around €8 billion to develop the 555-seat A380, so it would be hard-pressed to finance another new plane on its own. It has already received €2bn in government loans for the A380. Without the bilateral agreement, these soft loans and subsequent state handouts for another model would be a clear breach of World Trade Organization (WTO) obligations. Airbus parent European Aeronautic Defence and Space Company (EADS) expects to deliver 305 airliners in 2004 and might have to increase production next year. Co-chief executive Philippe Camus told reporters ahead of this week's UK's Farnborough Air Show that he believes scrapping the 1992 pact is unnecessary. But he was relaxed about coping without it: "If there is a new agreement between the United States and the EU, we will comply, but we see no need for a new agreement," he said. Nevertheless, Peter Allgeier will be discussing the workings of the agreement with Pascal Lamy's team. But aides to Lamy reckon it makes no sense for them - or, for that matter, the Europeans - to launch a steel-style trade offensive. Put simply, when US President George W. Bush slapped sanctions on foreign steel in return for rust-belt votes at the 2000 election, he knew the Americans could just about cope with the retaliatory backlash from their trading partners, even spread over a number of targets, such as Florida oranges and Harley-Davidson motorcycles. By contrast, a blow against Europe's biggest strategic industry could rebound straight back across the Atlantic to Boeing, with compound interest. David Pritchard, a researcher at the University of Buffalo, New York agrees. He published a report last month into how exposed the US and Boeing are to trade action from Brussels. "If the US, on behalf of Boeing, were to file a complaint about Airbus with the WTO, I suspect the European Union, on behalf of Airbus, would file a retaliatory complaint against Boeing. I can't see Airbus holding back; Boeing is exposed on the issue of 7E7 production subsidies," he said in an interview with his university's in-house journal. The most vulnerable to WTO action, warned Pritchard, is Boeing's $3.2bn (2.5bn euro) subsidy from Washington State. Legislation approving the subsidy contains language clearly indicating that the subsidy is intended to fund production, prohibited by WTO regulations, he said. "If Boeing's CEO, Harry Stonecipher, is going to 'raise the rhetoric' on the Airbus subsidy issue, one has to wonder what are his real motivations," Pritchard said. "Should he convince the office of the US trade representative to take action against Airbus, this will lead to a retaliatory complaint by the EU on the 7E7 production subsidies. Is Boeing willing to bet the 7E7 programme and the future of the commercial aircraft division on this rhetoric?" Major feature on tensions between Airbus and Boeing (and politicians on both sides of the Atlantic) on the question of subsidies. |
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| Source Link | http://www.european-voice.com/ |
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| Subject Categories | Business and Industry, Internal Markets |
| Countries / Regions | Europe, United States |
