US threatens to take row over Airbus subsidies to WTO

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The US government yesterday threatened to make an official complaint to the World Trade Organisation unless the EU put an end to "launch aid" subsidies to Airbus Industries.

Ahead of a meeting with European Commission officials today, John Veroneau, general counsel to the US trade representative, raised the stakes in the long-running transatlantic dispute over subsidies to Airbus and Boeing.

He said the US was looking for a new deal to replace the 1992 agreement that limits subsidies for the world's two largest plane makers to 33 per cent of the production costs for new models. "We will be starting on a blank sheet of paper, not editing and modifying the 1992 agreement," he said. "We believe it is time to bring an end to these subsidies." Failure to get an agreement is likely to result in a complaint at the WTO on the basis that launch aid loans to Airbus constitute unfair subsidies.

The US argues that the interest rate is secret and that the cash need not be repaid if the model is unprofitable. Roughly one-third of the €10.7bn (£7.3bn) cost of developing Airbus' A380 aircraft came from what Airbus calls "refundable launch aid".

For its part, the EU says Boeing has long enjoyed the benefits of massive US government's defence, space and transport contracts. It also argues that, last year, the State of Washington offered Boeing a $3.2bn (£1.8bn) incentive package to secure the assembly plant for its new 7E7 Dreamliner. EU officials also accused the US of grandstanding ahead of November's presidential elections.

Mr Veroneau said that the deal on offer from the US government was that existing subsidies or commitments would be "grandfathered" and allowed to run their course. He said: "We are proposing that there be no new subsidies but we are not looking to turn the clock back."

By contrast, he said, any WTO case against the EU would include existing loans to Airbus, raising the possibility of huge penalties being imposed.

Mr Veroneau offered one potential concession, however, suggesting that the type of inducement offered by Washington State to Boeing should be covered by the new agreement.

The EU said it will accept subsidy cuts for Airbus only if the US reduces aid for Boeing.