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Trade war fears as Boeing dispute escalates

The White House and political leaders in Europe yesterday became publicly involved in the escalating dispute over the planned $15bn (pounds 8.3bn) takeover by Boeing of McDonnell Douglas in the US, heightening fears that a trade war could break out.

Jacques Chirac, the French President, warned that the deal between the aerospace giants could be dangerous for the European industry, particularly for Europe's Airbus planemaking consortium. He made his comments after a meeting of antitrust experts from the 15 European Union member states recommended unanimously banning the Boeing deal.

Mr Chirac said: "We strongly support the Commission on its position on Boeing/McDonnell ... it could be extremely dangerous for Europeans."

Additional support for the European cause came from Guenter Rexrodt, Germany's economics minister. He said Boeing's concessionary offer to report regularly to the EU on any cross-subsidies from McDonnell's military business to its own civilian operations "were not enough to win EU approval".

Airbus declined to comment. "We have said everything we have to say on the subject. This is an issue between Boeing and the Commission and it is not for us to comment any further," a spokesman said.

In reply to the statements made by Mr Chirac and Mr Rexrodt, a spokesman for the White House said last night: "We think the principles of competitiveness are those that ought to attend to the European Union's consideration of the proposed merger. We hope it will be done consistently with anti-trust law as it's applied within the [European] Union."

He also disclosed that the US government had been in consultation with EU authorities for the past 48 to 72 hours.

The recommendation by the panel of European experts to ban the Boeing deal yesterday came after five days of tense talks during which negotiators from the European Commission snubbed as insufficient a compromise proposal from Boeing to adapt the merger to meet some EU objections.

According to a source, "the advisory committee agreed with the Commission that the commitments offered by the parties to date are not sufficient to remedy the competition problems ... and do not prevent a strengthening of Boeing's dominant position". The European Commission is expected to follow the advice of the experts at its regular meeting on Wednesday.

Although the merger involves two US companies, European rejection of the deal could prevent the proposed company from operating in the key aircraft market of the 15 member states.

"Only a miracle could do something," said an EU official who asked not to be named.

Boeing, which has already had its deal approved by the US Federal Trade Commission, said it was disappointed that Europe had rejected its proposals.

"Clearly we're disappointed in view of the fact that we've submitted both structural and procedural remedies that are designed to protect competition concerns," said Gerald Hendin, Boeing's vice president for public affairs, at the company's headquarters in Seattle.

Even though an EU internal deadline to reach an agreement passed earlier this week, a spokesman said there was still time for a late compromise. "The door is ajar for them to bring in something nice and refreshing," an EU official said, but stressed that time was running out fast.