United States Threatens Trade Sanctions On EU In Boeing-Airbus Dispute

The six year-old trade dispute between the U.S. and Europe over subsidies to Airbus is set to get more acrimonious after the U.S. yesterday threatened to seek the World Trade Organization's (WTO) approval to impose trade sanctions on the European Union over aid for the Airbus A350 aircraft.

The U.S. threat came after the EU refused to comply with an earlier WTO ruling on eliminating subsidies to Airbus, and the trade sanctions if approved, would amount to $7 billion to $10 billion annually.

While the WTO cannot force nations to stop illegal aid, it can impose sanctions for failure to comply with its rulings.

In June last year the WTO had ruled that the EU nations provided illegal subsidies to Airbus in the form of launch-aid loans, infrastructure support and equity infusions, to the detriment of rival Boeing. (See: Victory for Boeing as WTO rules Airbus subsidies unfair (http://www.domain-b.com/organisation/wto/20100701_airbus_subsidies_unfair.html))

The 1,200-page ruling concluded that Airbus received subsidies in the form of loans from European governments at below-market interest rates to produce its six best-selling models. The trade panel recommended that steps be taken to withdraw the subsidies or nullify their effects by 1 December.

Although the EU said on 1 December that it has withdrawn the subsidies and complied with the WTO ruling, the US refuted those claims saying that EU has given new subsidiesto Airbus for the development and production of large civil aircraft.

''The WTO clearly found that every single grant of launch aid to Airbus, for every single aircraft that company produced, was a WTO-inconsistent subsidy that caused unfair adverse effects to US industry and jobs,'' US trade representative Ron Kirk said in a statement. The US ''cannot accept anything less than an end to this subsidised financing.''

Chicago-based Boeing said in a statement, "Boeing is disappointed that EADS/Airbus and European governments have failed to comply with the WTO's landmark ruling against launch aid and other forms of illegal government subsidies that Airbus has received for more than 40 years.''

''Boeing strongly supports all the efforts by the US Trade Representative to seek full compliance with the removal of all the illegal government subsidies to Airbus -- particularly market-distorting launch aid, the most pernicious form of subsidy Airbus was found to have received .. This illegal subsidisation of Airbus products - plane after plane - is unsustainable and must stop now."

Undeterred by the US threat, the EU trade spokesman John Clancy hit back at the US and said, "We consider this move premature and not in line with the appropriate sequence of events in WTO disputes."

''We will nevertheless review the requests carefully and consider the next steps,'' he added.

Airbus also responded by saying Washington's statement was "nothing but a meaningless additional threat," and asked the WTO to find out whether the US was complying with WTO requirements to eliminate certain subsidies to Boeing.

In April 2010, the WTO had agreed with the EU's complaint that the Boeing 787 Dreamliner, has received at least $5.3 billion in illegal US government subsidies, which provided it an unfair advantage over Airbus.

Airbus parent European Aeronautic, Defence & Space Co (EADS) claimed such aid to Boeing cost it $45 billion in lost sales from 2002 to 2006.

The 783-page WTO report concluded that Boeing had received huge subsidies in the past and continues to receive significant subsidies.

The transatlantic trade dispute between the world's two largest commercial plane manufacturers may force the US and the EU to reach a compromise with both sides being faulted over improper conduct.

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