Business Desk

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The New York Sun

INTERNATIONAL


U.S., E.U. FAIL TO SOLVE DISPUTE OVER AIRBUS SUBSIDIES


America and the European Union failed to resolve their differences over government subsidies to aircraft makers Airbus SAS and Boeing Co., setting the stage for what could be the largest World Trade Organization dispute ever.


The two sides couldn’t reach an agreement, European Union Trade Commissioner Pascal Lamy said in an interview after meeting with U.S. Trade Representative Robert Zoellick in Washington.


The Bush administration began prodding the E.U. in July to rip up a 12-year-old agreement on government aid to aircraft makers, and threatened a WTO case if the E.U. didn’t comply by ending government loans to Airbus.


Mr. Lamy said earlier yesterday Europe would file a retaliatory complaint, claiming Boeing’s 7E7 jetliner gets unfair subsidies through the company’s military contracts and its relationship with Japanese suppliers helping to build the 7E7.


“The Europeans are saying there are all kinds of hidden subsidies to Boeing, and the U.S. is saying the same about Airbus, so let’s let it all hang out,” said Claude Barfield, an American trade official during the Reagan administration and now scholar at the American Enterprise Institute. “There is one ace in the hole on the American side, and that is the direct subsidy allowed by European governments.”


Telephone calls to the U.S. trade office and Boeing weren’t immediately returned.


– Bloomberg News


IN THE COURTS


DEFENSE RESTS IN TRIAL OF INK EXPERT FROM MARTHA STEWART CASE


The defense rested yesterday in the perjury trial of the Secret Service ink expert who testified for the government against Martha Stewart.


The expert, Larry Stewart, did not take the witness stand. Judge Denny Chin of Manhattan federal court set closing arguments for Monday morning and said jurors would get the case later that day.


Larry Stewart is accused of exaggerating his role in the ink testing of a stock worksheet that was used as evidence in the Martha Stewart trial. Prosecutors say another Secret Service employee did the tests.


Larry Stewart, who is not related to the celebrity homemaker, faces two counts of perjury.


Defense witnesses included another Secret Service employee, Benjamin Moore, who helped Larry Stewart prepare for his testimony and monitored it in the courtroom without raising objections.


The government rested its case earlier yesterday after calling to the stand a Secret Service inspector who interviewed Larry Stewart just days before prosecutors unveiled the perjury charges.


The perjury case against Larry Stewart is expected to figure prominently when lawyers for Martha Stewart try to convince a federal appeals court to overturn her conviction for lying about a 2001 stock sale.


But Martha Stewart has opted to begin serving her five-month prison term anyway and is due at a federal prison in Alderson, W.Va., late next week.


– Associated Press


NATIONAL


TIMES CLARIFIES STARR ROLE


The former Whitewater independent counsel, Kenneth Starr, worked on a case in which the Times is trying to stop prosecutors from accessing the phone records of two Times reporters, but is no longer working on the case, a Times company spokeswoman said yesterday. The spokeswoman, Catherine Mathis, said that Mr. Starr had been involved in trying to reach a resolution in the case before the Times filed a lawsuit against Attorney General Ashcroft. An August 4 letter to Deputy Attorney General James Comey that was filed in court this week as an exhibit in the Times suit came from Mr. Starr and from another lawyer who represents the Times, Floyd Abrams. It began, “On behalf of The New York Times Company (‘The Times’), we write to request a meeting with you.” A New York Times article about the case that appeared earlier this week referred to Mr. Starr as a lawyer “for the Times.”


– Staff Reporter of the Sun


PEPSICO NET RISES 35%; FRITO-LAY TO CUT 780 JOBS


PepsiCo Inc., the world’s no. 2 soft- drink maker, said third-quarter earnings increased 35%, boosted by sales in Asia and lower taxes. The company’s Frito-Lay snacks unit will close four American plants, shedding 780 jobs.


Net income increased to $1.36 billion, or 79 cents a share, including a 13-cent tax gain, Purchase, N.Y.-based Pepsi-Co said in a statement.


Sales rose 6.3% to $7.26 billion, the slowest pace in more than a year.


The chief executive, Steve Reinemund, 56, is using savings from cost cuts to expand distribution of Lays chips and Tropicana juice in China and India and boost marketing of lower-fat snacks in America, where soft-drink demand fell. Overseas expansion helped PepsiCo boost sales at a faster rate than Coca-Cola Co. in five of the past seven quarters.


“When you look at Pepsi’s performance versus Coke, it is just night and day,” said Christopher Meeker, an analyst with Farr Miller & Washington, in Washington, D.C., which owns 200,000 PepsiCo shares. “Pepsi is getting great growth from international sales, which is a huge opportunity. Coke has already expanded throughout the world.”


Profit exceeded by 1 cent the average 65-cent forecast of 16 analysts surveyed by Thomson Financial. The estimate excludes the tax gain. The company earned $1.01 billion, or 58 cents, a year earlier.


– Bloomberg News


JUSTICE DEPARTMENT OPENS CRIMINAL INVESTIGATION OF FANNIE MAE


The Justice Department has begun a criminal investigation into mortgage giant Fannie Mae, which has been accused of earnings manipulation and ordered to revamp its accounting, it was learned yesterday. An accounting crisis emerged last week at the government-sponsored company, which finances and guarantees the most home mortgages in the country. A federal agency that oversees Fannie Mae cited serious accounting problems after eight months of investigating. Also, the Securities and Exchange Commission is conducting a preliminary inquiry. Fannie Mae shares, which fell more than 13% last week, declined by $2.85 yesterday to close at $63.40 on the New York Stock Exchange.


The Justice Department’s investigation was confirmed anonymously by a person with knowledge of that probe, first reported in Thursday’s Wall Street Journal. Department spokesman Bryan Sierra declined comment, as did Brian Faith, a spokesman for Washington-based Fannie Mae. Regulators from the Office of Federal Housing Enterprise Oversight have provided their findings about Fannie Mae to the Justice Department and the SEC. The agency cited in a report an instance in 1998 in which accounting for $200 million in expenses was put off to a future reporting period so executives could receive full bonuses.


“The government could use the bonus plan to help show a motive for overly aggressive accounting,” said a law professor at Fordham University, Richard Carnell.


Fannie Mae’s board agreed this week to the agency’s demands for revamped accounting and an increased capital cushion. Regulators said yesterday that the recalculations it ordered may force Fannie Mae to restate its past earnings.


– Associated Press


REGULATORY


BAYER UNIT TO PAY $33 MILLION FINE, PLEAD TO PRICE-FIXING


Bayer AG’s American unit agreed to plead guilty and pay a $33 million fine for conspiring to fix prices of a chemical used to make plastic grocery bags, shoe soles and other consumer products. The guilty plea by Bayer Corp. would be the first in an American government investigation into price fixing for the chemical additive used in a variety of products, the Justice Department said in Washington. In July, Bayer AG, based in Germany, agreed to pay a $66 million fine to settle an American charge it conspired to fix the price of chemicals used to make rubber products.


The latest scheme took place between 1998 and 2002 with another producer of aliphatic polyester polyols made from adipic acid, court papers said. The government didn’t identify the other producer of the chemicals, which keep plastic bags from sticking and also are used to make automotive coatings, filters, belts, seals, gaskets, textiles, adhesives and sound-proofing material.


Bayer Corp., based in Pittsburgh, said in an e-mailed statement that it agreed to enter the guilty plea in federal court in San Francisco to resolve “all criminal charges” related to the chemical additive. The American unit of Germany’s second-largest drug and chemical maker said it cooperated with the investigation.


Company spokesman Mark Ryan said Bayer AG would take a third-quarter charge against earnings to cover the fine. Bayer makes aspirin, other health-care products such as Alka-Seltzer.


– Bloomberg News


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