EU and US set for renewed battle over aerospace aid

By Anna McLauchlin

Date: 02/09/04

EU AND US officials will this month resume their longstanding battle over an agreement on government support for aerospace giants Airbus and Boeing.

Following a preliminary discussion in July, the US has requested a follow-up meeting on 14 September when it will ask the EU to end its repayable loan scheme to Airbus

"The time has come to end these subsidies and prepare a new bilateral agreement," said a US official. "We've had some degree of indication that the Commission is willing to engage with us so on that basis we're hopeful."

But a Commission trade spokesman was less positive

"We are not close to anything," Arancha Gonzalez told European Voice. "What is clear is that any modification of the 1992 agreement should, from our point of view, limit the amount of aid the US gives to Boeing."

The debate on aircraft subsidies dates from a 1992 agreement between the EU and US under which both sides agreed that their government loans to their respective aerospace companies would not exceed 33% of total investment.

Since then both sides have accused each other of unfair practice.

Boeing objects to the EU's repayable loans for Airbus, which the US claims amount to "underwriting a third of the cost of developing an aircraft on essentially risk-free terms".

Meanwhile, the EU takes issue with US support for Boeing in the shape of government-funded defence contracts from NASA. The Commission points out that Boeing's civil aircraft programmes are supported by government subsidies from Japan, Italy and Korea

The EU claims the dispute really stems from US frustration that Airbus has gradually taken market share from Boeing; last year the Union company delivered more aircraft than the US manufacturer for the first time in its history

The US election adds extra fuel to the fire. "This issue is like a tropical fever, it comes and it goes," said one EU insider. "But certainly I see a clear coincidence with the election in the US."

But Washington denies the matter will blow over after the election.

"Now Airbus is a clearly established player…what used to be tenable is no longer tenable," said the US official.

"This would continue to be a problem regardless of the date on the calendar."

The official reiterated a threat made by US President George W. Bush in August that the US could challenge EU subsidies before the World Trade Organization (WTO). "We haven't definitively said we will do this now, but it's one of the options," he said

The Commission appears unruffled by the threat. "Both the heads of Boeing and Airbus have said a WTO challenge makes no sense - that's why we reached an agreement in 1992 rather than going through litigation," said a Commission official.