European Union Rejects American Demand for Ban on New Aid to Airbus

The European Union rejected an American demand for a ban on government loans for new Airbus SAS programs as part of changes to an aircraft aid agreement that also applies to Boeing Co., intensifying a trade dispute.“It would be very difficult for us to sell to Airbus that we would agree to eliminate any support to Airbus in the future,” E.U. trade spokeswoman Arancha Gonzalez told reporters in Brussels.The U.S. and European Commission, the 25-nation E.U.’s trade authority, held aircraft subsidy talks yesterday after discussions of possible rule changes in July and a U.S. threat to file a World Trade Organization complaint in August.America says loans from Britain, French, and German governments helped turn Toulouse, France-based Airbus into the world’s biggest plane maker. Airbus sold 305 aircraft last year compared with Boeing’s 281. Airbus counters that American defense and space contracts granted to Chicago-based Boeing are aid.European aid to Airbus has totaled $15 billion since 1967, according to Boeing. American support for Boeing has amounted to $18 billion since 1992, the E.U. says.“Now is the time to end aircraft subsidies,” John Veroneau, the general counsel of the U.S. Trade Representative’s office, said in Brussels. The E.U. “has not accepted our goal of ending subsidies at this point in time.”The E.U. wants subsidies to Boeing from other countries such as Japan to be covered by any new agreement and backing by American states including Washington to be notified, Ms. Gonzalez said.The planned Boeing 7E7 – the company’s first new model in 15 years – is getting about $1.6 billion from Japan and $3.2 billion from the state of Washington, she said.The E.U. also objects to Boeing support through American defense and space contracts, Ms. Gonzalez said.“We have an interest in disciplining Boeing support – we aren’t going to do anything unilaterally,” she said.America said contracts to Boeing aren’t aid and the 7E7 isn’t getting subsidies.“It is not clear to me that the 7E7 gets the subsidies that people have mentioned,” Mr. Veroneau said.Gonzalez declined to say whether the E.U. would in any circumstances accept a ban on future Airbus loans. The commission wants both sides to agree on the “objectives and principles” of any new aid rules before organizing another round of talks, she said, adding that negotiators will be in touch in “coming weeks” about further discussions.American support for Boeing and European benefits for Airbus, a unit of European Aeronautic, Defense & Space Co., are governed by a 1992 accord that America wants to replace with a “fundamentally different” pact, Mr. Veroneau said Wednesday in Brussels.America, Mr. Veroneau said, wants the new agreement to ban European government loans for Airbus models after the A380, the 555-seat plane due to enter service by 2006.The Bush administration will “level the playing field one way or another” and both sides “may end up” with no agreement, he said.The existing accord, which has a revision clause, puts a ceiling on direct government support for new aircraft programs that amounts to 33% of total development costs. This provision covers European loans.The pact also limits indirect support to 3% of a country’s large civil aircraft industry turnover – a measure that applies primarily to U.S. contracts.Mr. Veroneau declined Wednesday to specify possible changes to the rules governing indirect support such as research and development contracts. He said a new pact should address government contracts with a relatively direct link to commercial planes.“Our focus is not curbing R &D gen erally. Rather, it’s to focus on those R &D projects that would qualify as subsidies,” he said. “An R &D project can run the gamut. One can be on such basic science that the benefit to commercial aircraft is not very clear and direct. On the other end of the spectrum, if you have an R &D contract to develop the best composite material for the skin of the A380, that’s a pretty direct R &D project that would fall within a definition of a subsidy.”Airbus plans to offer a new aircraft as early as the end of the year, its chief executive, Noel Forgeard, said earlier this month. The company will introduce either a new plane, which could cost $8 billion, or a cheaper derivative of an existing model, Mr. Forgeard said.Boeing is seeking a comeback in the commercial aircraft market with the 7E7, which would seat 200 to 300 passengers, be 20% more efficient than the aircraft it replaces, and be delivered in about 2008.President Bush, running for re-election on November 2, threatened last month to file a WTO complaint over Airbus aid, which takes the form of repayable loans.A possible American complaint to the WTO would address past European aid for Airbus under the WTO’s own subsidy rules, according to America, which says the 1992 pact doesn’t preclude a lawsuit.“The status quo is not acceptable,” Mr. Veroneau said. “The two options are either reach a new agreement or bring a WTO case.”Boeing estimates that Airbus has gotten $15 billion in “launch aid” from European countries to develop new aircraft since 1967.The commission says Boeing has received $18 billion in American government support since 1992 and hasn’t repaid any of it. It says Airbus has repaid $6.5 billion to European governments since 1992 and will have repaid $15 billion by 2018.“Whatever the means of funding, we in Europe have to pay our loans back,” EADS co-Chief Executives Philippe Camus and Rainer Hertrich said in a statement sent to Bloomberg News. “Boeing just banks the money it receives as subsidy.”Airbus, which doesn’t release the specific interest rates on the loans it receives, has said the loans are in some cases at rates above market levels. State aid accounts for no more than “a hundred-thousand bucks” per plane, Airbus said in July.American government funds helped Boeing develop a version of the Joint Strike Fighter, from which it tapped technologies for the new 7E7 plane.

European Union Rejects American Demand for Ban on New Aid to Airbus

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