Talks continue on Airbus-Boeing subsidies

WASHINGTON, April 11 (UPI) -- The United States and European Union failed to strike an agreement Monday to end a dispute over subsidies for Airbus and Boeing, but both sides said talks could continue.

The United States has urged the European Commission to negotiate a new deal to replace the 1992 Agreement on Large Civil Aircraft, which limits government support. Last January, the two sides agreed to conduct bilateral negotiations for three months in hopes of reaching an agreement. That deadline passed Monday.

Negotiators for both sides have said they are willing to continue talks and maintain a temporary suspension of government aid to the aircraft producers to prevent what could become the largest dispute in the history of the World Trade Organization -- something that could impact adversely the EU-U.S. trade relationship.

"I stand ready to continue negotiation," Peter Mandelson, EU trade commissioner, said in a statement over the weekend. "The EU remains interested in reaching an initial agreement that reduces the levels of government support in this sector and completing a comprehensive agreement in the longer term."

Monday's missed deadline means Washington or Brussels could resume subsidies or take retaliatory action at the WTO. Washington has said it is willing to avoid a dispute and has urged the EU to end any additional subsidies to Airbus, headquartered in Toulouse, France.

"In the event that the EU proceeds with additional subsidies for Airbus large civil aircraft, the United States will return to the WTO," Robert Zoellick, U.S. deputy secretary and former U.S. trade representative, said in a statement last week.

Airbus is expected to receive $1.7 billion (1.3 billion euros) in government loans to cover 33 percent of its estimated cost to launch its new A350 model aircraft. The total cost of the program is estimated to be $4 billion (3 billion euros). The A350 will be the lead competitor to Boeing's 787 Dreamliner, scheduled to begin flying in 2008.

The EU subsidies are loans to the airline to build its production line. If the line is successful Airbus is required to repay the loan, but if it is not a commercial success, the EU would write off the debt.

Boeing, one of the largest U.S. government contractors, receives substantial defense revenues to fund its production, but is required to pay back all loans -- successful or not.

Airbus officials said Monday they had no plans to accept any future aid from the four member states participating in the project -- Great Britain, France, Germany and Spain.

A spokeswoman for the EU trade office said talks should continue, but not indefinitely.

"As long as no action is taken, there is a window of opportunity," Claude Veron-Reville told the Deutsche-Welle, Germany's international broadcast service. "While there is a chance to negotiate and to avoid dispute, we should try to make good use of this period. This period cannot drag on for too long because there are important commercial interests at stake."

The EU Trade commissioner has urged the United States to reconsider its position and offer bigger reductions in research aid and tax breaks for Boeing in order to win an end to EU government loans for Airbus.

An Oct. 6 complaint filed by the United States to the WTO said Airbus received more than $15 billion in illegal government loans. The EU maintained that Boeing has received as much as $23 billion in unfair assistance.

Also Monday, Boeing said the Korean Air Line Co. would order up to 20 new Boeing 787 Dreamliners -- a deal worth about $2.6 billion. Korean Air agreed to order 10 planes, which have a capacity of 200-300 passengers, with the option of ordering 10 more at a later date. Delivery is scheduled to begin in 2009 and extend through 2013.

Boeing has said the 787 will use 20 percent less fuel than current aircraft, while providing up to 45 percent more cargo capacity.

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