*EPF416 09/16/2004
EU Rejecting U.S. Push to End Subsidies for Commercial Aircraft
(Transatlantic partners discuss replacing 1992 subsidy agreement) (580)

By Berta Gomez
Washington File Staff Writer

Washington -- The U.S. government has thus far been unable to convince the European Union (EU) to replace a 1992 bilateral agreement that permits subsidies for commercial aircraft development, a U.S. trade official says.

U.S. negotiators traveled to Brussels September 16 aiming to reach agreement on ending aircraft development subsidies and permitting fair competition between the European producer, Airbus Industries and its U.S. competitor, Boeing Company, John Veroneau, general counsel of the Office of the U.S. Trade Representative (USTR), told reporters via teleconference.

Noting that Airbus has now achieved market parity with Boeing, Veroneau said, "The status quo is not acceptable." In the absence of a new agreement the United States will consider bringing a case before the World Trade Organization (WTO), he added.

Boeing and U.S. officials have said that the existing agreement reflects conditions 12 years ago, when Airbus was struggling and Boeing dominant in the market. The two companies are now fully competitive, they say.

In an August 13 speech to Boeing employees in Seattle, Washington, President Bush described ongoing EU government subsidies to Airbus as "unfair" and said he had directed U.S. Trade Representative Robert Zoellick to inform European officials of the U.S. position and "to pursue all options to end these subsidies -- including bringing a WTO case, if need be."

Veroneau described the five-hour talks in Brussels as "useful and frank," but said the European Commission (EC), the EU governing body, "has not yet accepted our goals," nor did the parties agree on a time frame for resolving their differences.

"We will continue this conversation, but we did not lay out a specific timetable for consultations," said

Veroneau, who led the U.S. delegation to the meeting, said that one problem facing the parties is that differing definitions of "subsidy" have led to disagreements over how much government support is going to the two companies. "There are diverging views on the levels of support each side has received. There are a number of different ways to calculate the numbers," he said.

For example, Airbus and EU officials say that Boeing receives "indirect" subsidies in the form of U.S. government research and development (R&D) funds and various tax breaks. For their part, Boeing and U.S. officials contend that the 1992 agreement allowing direct government support of up to 33 percent of the costs for development of new aircraft is no longer needed by a mature and financially robust Airbus.

Veroneau said that the real question is whether the 1992 agreement should remain in force given current conditions.

"We've suggested that to have a useful agreement we need a definition of subsidies. We believe the SCM [WTO Agreement on Subsidies and Countervailing Measures] is a good place to start," Veroneau said.

He acknowledged that if the U.S. were to file a complaint with the WTO, the EU might respond by filing a complaint alleging U.S. subsidies. "We assume that if we file, they'll respond in some way," Veroneau said.

Zoellick is scheduled to meet at the end of September in Washington with outgoing EU Trade Commissioner Pascal Lamy. Zoellick spokesman Rich Mills told reporters the meeting would "probably" take place and that "it would be safe to assume" the Airbus issue will be on the agenda.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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