US-EU Airbus Row Hits Turbulence

The two agreed in January to avoid a bruising battle at the World Trade Organization and negotiate by April 11 a phase out of subsidies to develop commercial aircraft. But with three weeks left and little progress to date, mutual recriminations have begun.

The dispute flared up again on Friday when US negotiator Robert Zoellick decided to step up the pressure after meeting with his European counterpart, EU Trade Commissioner Peter Mandelson. Zoellick's spokesman said "the Europeans are clearly unwilling to eliminate the subsidies," and said if necessary the United States was ready to return to litigation at the WTO.

This triggered a warning Saturday from Brussels that it would also make claims against Washington. "If the US decides to move to the WTO approach, which we hope they will not, obviously we would launch our own counter-case," said a European Commission official who spoke to AFP on condition of anonymity.

Complaints traded across the atlantic

The United States lodged a complaint against EU subsidies to France-based Airbus with the WTO in October, which brought a counteraction from Brussels against what it termed indirect US government aid for Chicago-based Boeing.

But the agreement in January to try to resolve the dispute by renegotiating a 1992 bilateral accord that set the terms of assistance to aircraft makers effectively froze the WTO procedure, which EU officials had said would have been a "disastrous" legal clash. The two sides agreed to freeze subsidies while they negotiate the new agreement.

Washington tones down fighting talk

Washington on Saturday dropped the saber rattling, and said it was ready to extend the deadline for reaching an agreement. "We are very willing to continue talking, using the January 11 agreement as the basis -- and we are willing to extend the terms of the January agreement," US trade representative spokesman Richard Mills told AFP.

But "the problem is that over the last two months the EU has been focused more on maneuvering than on negotiating the core substance," Mills said by telephone from Washington. "As far as we are concerned, we're ready to continue the negotiations," the EU official said.

However, should no agreement be reached, "nothing would prevent the EU governments to put up the launch aid for the A350," the EU official warned, referring to the long-haul jet which would rival Boeing's 787 "Dreamliner".

Europe wants "pertinent" questions answered

Part of the difficulties in the negotiations is that the Europeans are trying to reach agreements on two issues that were not included as part of the January agreement: Japanese aid for development of Boeing's 787 and the Foreign Sales Corporations (FSCs) that US companies use to lower their taxes.

"We haven't changed positions or made specific demands," said the EU official, adding that "we've indicated we want pertinent questions added" to the discussions.

The EU believes that no comprehensive deal can be reached by April 11 given the complexities of the issues. Instead it has proposed cutting the negotiations into two and reaching by the deadline next month "a more modest package that creates confidence" to reach a comprehensive deal at a later date.

But if the EU is ready to put on the table the launch aid for Airbus aircraft it expects "an equivalent contribution" from the United States, said the official.