The European Union retaliated against the US on Tuesday in the escalating row over airline subsidies as Peter Mandelson, EU trade commissioner, said he would resume legal action in the World Trade Organisation over aid to Boeing.
The hostile action came in response to an announcement by Washington on Monday night that it would ask for a WTO dispute settlement panel aimed at halting all government support for Airbus, the European group.
Mr Mandelson responded on Tuesday by saying Europe had “no alternative” and that “in order to sustain conditions for air competition in civil aircraft production and to maintain a proper commercial balance between the two companies, the European Union is today resuming action in the WTO to confirm through a panel the illegality of subsidies paid to Boeing.”
Although the commissioner insisted on Tuesday that he was very confident about the EU's case against Boeing and that “Europe's interests will be fully defended,'' he also made his clearest forecast to date that such lengthy, sensitive and complex litigation would prove self-defeating for both sides. “I predict that the outcome will be not be clean, won't be clear-cut, and after all the expense of time, effort and money, we will have to come back and negotiate just as we should have done now.''
Even if the Geneva trade arbiter were to yield a clear ruling against one of the parties, Mr Mandelson suggested that it would be impossible to enforce it in view of the huge commercial and political interests at stake on both sides of the Atlantic. “Is Europe really going to spark a trade war in order to enforce a favourable ruling against Boeing? I should hope not,'' he said.
The dispute could yet widen. While Japan was not included on Tuesday in the EU's counter-complaint, Boeing has been increasingly moving its aircraft production outside of the US and the EU has focused particularly on what it sees as unfair indirect subsidies from Japan, where Boeing is building part of its 787 aircraft. Mr Mandelson said that Japan remained “on my radar screen'' and did not rule out its inclusion at a later stage in the litigation. “This is a market with just two players, so discipline should be extended in any other area where they are seeking to gain an unfair advantage,'' he said.
Mr Mandelson also firmly rejected suggestions that personal acrimony and poor negotiating tactics had pushed the EU-US aircraft dispute into the dispute settlement mechanism of the WTO. Washington's decision to return to the body came after another bout of recrimination and an accusation that Mr Mandelson had been “spinning'' the story by making public his latest efforts to revive the talks. Mr Mandelson said: “I make no apology for seeking to avoid the misuse of energy and that abuse of the WTO's machinery,'' he said.
The US has rejected outright a EU proposal to cut government launch aid for new commercial aircraft by about a third.
The escalation in the row ends for the moment prospects for a negotiated settlement and raises the odds of eventual punitive trade retaliation by one or both sides.
While the US had stepped up its threats recently to seek a WTO panel, the timing was a surprise, coming just as Europe has been plunged into a constitutional crisis, and only three days after Brussels had made a fresh proposal aimed at reaching a negotiated deal.
Fresh hostilities underline gulf over subsidies
The Airbus consortium, which has overtaken US rival Boeing as the world's largest commercial aircraft maker, is a source of great pride in Europe, and was cited by French President Jacques Chirac in his failed efforts to persuade French voters to support the new European constitution.
Under pressure from Boeing, the US has repeatedly demanded that Spain, France, the UK and Germany end all future aid to Airbus. But in the latest proposal, Peter Mandelson, the EU's trade commissioner, told Rob Portman, the US trade representative, in a telephone call on Friday that Europe was prepared to cut only by about a third the launch aid for Airbus's A350 and other aircraft projects.
FT briefing: Boeing/Airbus trade dispute
While the US was irritated by Mr Mandelson's decision to make public what Washington saw as a confidential offer, a senior US trade official said the decision to go to the WTO was not triggered by the new proposal. Instead, he said, “it became clear to us that the member states are proceeding to provide launch aid for the A350,” a planned competitor to Boeing's successful 787 long-range jet. He said the EU Commission “was not in a position to prevent the member states from doing this.”
Airbus is hoping to launch the A350 at next month's Paris air show, following last month's successful test flight of the A380, the world's largest commercial airliner. The launch aid for the A350 is expected to amount to about €1.3bn (£890m).
It is likely to be 18-24 months before a WTO panel rules on the dispute, giving both sides more time to negotiate a solution. The US will ask the WTO to rule that launch aid for Airbus violates prohibitions against subsidies, and will target not only future support for Airbus but also the “effects” of past subsidies. That means the four European governments could be forced to seek repayment of some or all the launch aid granted to the A380 as well as the A350.
Despite the rising trade tensions, Mr Portman and Mr Mandelson tried to address fears that the dispute could interfere with the Doha Round global trade negotiations, issuing a joint statement saying “this dispute shall not affect our cooperation on wider bilateral and multilateral trade issues.”
