Boeing, Airbus get three months to settle aid row

The European Union and the United States set a three-month deadline yesterday for ending subsidies to their respective large commercial aircraft manufacturers, Airbus and Boeing, and so avert the threat of a debilitating trade war.

The European Union and the United States set a three-month deadline yesterday for ending subsidies to their respective large commercial aircraft manufacturers, Airbus and Boeing, and so avert the threat of a debilitating trade war.

During that period Brussels and Washington have agreed not to provide any new funding for civil aircraft programmes or resort to litigation through the World Trade Organisation in an effort to penalise the other side while a new agreement on subsidies is sought.

Yesterday's breakthrough, announced simultaneously by the European Trade Commissioner Peter Mandelson and the outgoing US Trade Representative Robert Zoellick, came just a week before Airbus formally unveils its A380 super-jumbo, which is being built with £2.65bn of financial support from European taxpayers.

Mr Mandelson said the decision averted an "acrimonious and bitter dispute" at the WTO which would have taken up time and energy and poisoned EU-US relations in the run-up to the Doha global trade negotiations.

But he cautioned that there were "a lot of hoops to go through" before a deal is reached. He also defended launch aid given to Airbus as "transparent and legal". Mr Mandelson said: "We need open warfare on this issue like we need a hole in the head. I have no doubt that if pursued the whole length, this gladiatorial clash would have succeeded in giving a pyrrhic victory to both sides".

Mr Zoellick also warned that an agreement was not a foregone conclusion. "There is much work to be done if we are to be successful in negotiating an ultimate agreement, but today does mark an important step in trying to end subsidies for large commercial aircraft," he said. "For the first time in this long-standing dispute, the US and the EU have agreed that the goal should be to end subsidies."

The "subsidies standstill" and the "litigation standstill" are designed to allow EU and US officials to negotiate a replacement to a 1992 agreement which allows government funding of one-third for new civil aircraft programmes.

The Bush administration unilaterally withdrew from the 1992 agreement last autumn and lodged a complaint with the WTO over the $15bn of "illegal" support given to Airbus by its sponsor governments in Britain, France, Germany and Spain.

The EU retaliated immediately with its own WTO complaint, alleging Boeing had been massively subsidised by the back-door through tax breaks, Pentagon research and development grants and support from overseas governments such as Japan.

Had the two sides not agreed to the new talks, the row would have been referred to the WTO's disputes panel, leaving the whole issue of support for civil aerospace in limbo and bringing a trade war closer. Mr Mandelson said that had there been a WTO panel "both cases would have been successful in Geneva, both sets of intervention would have been struck down".

He contrasted Airbus's "transparent and legal" launch aid with the "opaque and indirect" subsidies which Boeing enjoyed. However, EU officials made it clear the launch aid given to Airbus would be part of the negotiations with the US.

The two sides will use existing WTO definitions to draw up a list of types of aid and then agree which should be outlawed and which permitted. Any agreement would be enforced through "transparency and strong dispute settlement procedures" and reviewed after one year of operation.

If an agreement can be reached, the EU and US will work to broaden it to cover other countries, such as Japan, which is providing financial support for Boeing's latest 250-seater jet, the 7E7 Dreamliner.

Harry Stonecipher, the chief executive of Boeing, who has led American lobbying efforts to replace the 1992 agreement, said he was pleased the EU and US had taken "an important step towards ending subsidies", and was encouraged by the "good faith" displayed by both sides.

Yesterday's announcement rules out any short-term government funding for the new Airbus A350, which the four-nation plane maker plans to build to compete with the 7E7. Noel Forgeard, the Airbus chief executive, said he intends to apply for up to €1bn in refundable launch aid.