September 6, 2009 7:26 pm

Europe and US air their differences

Well, there’s a surprise. It turns out that at least some of the billions of euros in government financing that Airbus has received over the years contravenes World Trade Organisation rules. Who suspected that? It will be equally unremarkable if a separate WTO panel in a few months finds Boeing is also guilty of receiving illicit subsidies. But what would be truly shocking, and extremely foolish, is for Washington and Brussels actually to start imposing trade sanctions on each other as a result.

The case is the biggest ever handled by the WTO, and any likely retaliation would materially damage transatlantic trade. Instead, the two sides need to return to the negotiating table, where they were until the US decided to launch litigation in 2005.

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Does this mean the WTO case will have been pointless? Not necessarily. The hundreds of pages of the ruling should at least help to clarify which subsidies contravene WTO rules and why, a matter generally shrouded in a fog of claim and counter-claim. Such clarity will also give guidance to aircraft makers from countries aspiring to break the transatlantic duopoly, such as China and Brazil.

But whatever EU-US agreement is negotiated, it should aim to make the restrictions on subsidies as tough as is practicable, not sink to a lowest common denominator. Here the omens are not good.

The flurry of banking and auto bail-outs around the world over the past year risks creating a damaging equilibrium of high protectionism and heavy subsidies all round. Trade-distorting violations are becoming so prevalent that it will be difficult for governments to have recourse to the WTO’s dispute settlement process – one of the few parts of the system that has actually worked properly in recent years – without inviting counter-litigation. Few countries are sufficiently free of sin to cast the first stone at others.

The management of the world trading system risks, in fact, becoming an Airbus-Boeing impasse on a global scale. To avoid that, there is no substitute for trade ministers undertaking their perennial task – facing down destructive opposition at home in order to make constructive contributions to talks abroad.

Despite the warm words about the so-called “Doha round” emanating from last week’s talks in New Delhi, there is little evidence that the big powers, and particularly the US, have yet taken those steps. That, in the end, will be far more important than the detail of this particular decision.

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