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Snubbed Mandelson takes Boeing fight to WTO

David Gow in Brussels
Wednesday June 1, 2005

Guardian

The EU launched a tit-for-tat legal action at the World Trade Organisation yesterday over what it claims are billions of dollars' worth of illegal subsidies for Boeing, the American plane-maker.
Peter Mandelson, EU trade commissioner, was forced to initiate the action after the Bush administration rejected his latest offer of cuts in launch aid for Airbus late on Monday. At the same time the American government took its own dispute over alleged subsidies for Airbus to the WTO.

The former Labour cabinet minster, who is already under fire for his handling of EU talks with China over a flood of textile imports, saw his peace offer over Airbus and Boeing spurned as "spin". He accused Boeing of holding Washington "in a tight political grip".

Mr Mandelson had gambled that the US would not risk a trade war over the bitter dispute between the two companies but would respond to his moves for a negotiated settlement to avoid escalating transatlantic tensions and save the Doha round of global trade and development talks.

He took comfort from the agreement of Rob Portman, the new US trade envoy, that the dispute "shall not affect our cooperation on wider bilateral and multilateral trade issues" but repeatedly demanded fresh energy, urgency and leadership in reigniting the stalled Doha talks.

"Everything that's wrapped up in the Doha round is infinitely more important than what's basically a grudge fight between two aircraft companies competing for a share of a global market big enough to accommodate both of them," he said.

Mr Mandelson added: "America's decision will, I fear, spark probably the biggest, most difficult and costly legal dispute in the WTO's history ... It will probably last years, there will be inevitable appeals and I predict that the outcome will not be clear or clean-cut and we will have to come back and sit down and negotiate a way forward."

But Mr Mandelson added to Washington's ire by insisting that all launch aid for Airbus provided by Britain, France, Germany and Spain was legal under WTO rules. His aides calculated that repayable aid for Airbus was $3.7bn (£2bn), compared with direct and indirect aid to Boeing of $29bn since 1992.

Even so, he said, he had "gone the extra mile" by offering to cut by 30% an aid deal worth €1bn (£680m) for the new Airbus A350, the rival to Boeing's new 787 Dreamliner, as well as reducing the period over which the money was repayable. It was now open to the four EU governments to provide any amount of aid for the A350.

Mr Mandelson accused Boeing of orchestrating the WTO move in a clear effort to damage Airbus. "It's not subsidy that Boeing fears but competition ... Central to what Boeing is doing is to undermine the launch of the A350 so Boeing can rain on the Airbus parade at the Paris Air Show [in mid-June]."

A US trade official rebutted any suggestion the Bush administration was being manipulated by Boeing and dismissed Mr Mandelson's figures on subsidies out of hand.

He had claimed that Airbus delivered a profit to govern ments by repaying loans at commercial interest and handing over royalties, while Boeing had paid back "not a cent."

Airbus, which claims Boeing's 787 is the most subsidised airliner ever with $5bn in non- repayable aid, says it has repaid more than $6.7bn to its sponsor governments, or 40% more than it has received. It has also agreed to see the eventual elimination of all launch aid if Boeing responds.

US trade officials held out the hope of talks. "We stand ready to have a separate bilateral track to see if we can arrive at a satisfactory agreement to eliminate subsidies without going through litigation," they said.

Air wars: State aid levels

European commission figures showing government support since 1992

EU
Launch investment to Airbus since 1992: $3.7bn. This investment is capped at 33% of the development costs of an aircraft, as required by the 1992 EU-US agreement.

Total: $3.7bn

US
Washington state tax incentives (paid over 20 years, the majority of which will go directly to Boeing): $3.2bn

Washington subsidies for Boeing-specific infrastructure: $4.2bn

Launch investment from Japan for Boeing's risk-sharing partners in the B787: $1.6bn

Research and development funding through Nasa and the department of defence: $20bn

FSC benefit payments since 2000: $1bn

Total: $29bn-plus

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