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EU Hits Back at US in Aircraft Aid Row

The United States and the European Union appear to be heading toward the biggest trade fight in history, with competing cases at the World Trade Organization over accusations of government subsidies to both sides' major aircraft manufacturers. It will probably take the WTO about 18 months to issue a final verdict on the matter.

The United States was the first to move, asking the WTO to set up a panel of trade judges to investigate whether the E.U. has given Airbus, the European aerospace company, billions of dollars in illegal aid.

Hours later, the E.U. retaliated, saying it would file its own counter-complaint against the U.S. aircraft maker Boeing, which it accuses of receiving unfair government subsidies.

The move and counter-move follow the breakdown Monday of off-and-on U.S.-E.U. talks aimed at achieving a negotiated settlement that would end subsidies to the planemakers. An E.U. offer to cut European government loans to Airbus for its proposed A-350 passenger jet by 30 percent, in exchange for similar cuts in aid to Boeing, was rejected by U.S. officials as not being enough. Washington says that was a step back from an earlier E.U. offer to eliminate all subsidies.

E.U. Trade Commissioner Peter Mandelson says the U.S. decision to take the matter to the WTO is "highly regrettable". He added, "I am disappointed that the U.S. has chosen this confrontation with Europe. America's decision will, I fear, spark probably the biggest, most difficult and costly legal dispute in the WTO's history. It will be hard-fought on both sides, and I can assure you Europe's interests will be fully defended."

U.S. Trade Representative Rob Portman said in a statement late Monday that preparations being made by E.U. governments to commit more than $1 billion to Airbus for the development of the A-350 broke the spirit of an agreement to suspend all subsidies while the two sides were engaged in bilateral talks on the issue.

The A-350 would compete directly with Boeing's new 787 jet in the market for long-distance, midsize passenger and cargo aircraft.

For his part, Mr. Mandelson accuses Boeing of receiving tax breaks from the government of Washington state, where its main factory is located, as well as U.S. federal government contracts for military and space research and Japanese government support. All that aid, he says, is worth billions of dollars.

Europe's top trade official says that, ironically, the U.S. decision to take the case against Airbus to the WTO means E.U. governments can now feed the aircraft manufacturer the money it needs to launch the new model.

Even though the trade war promises to exacerbate tensions between Washington and Brussels, the two sides say they will not let their spat over aviation subsidies affect other trade issues, such as their negotiations with developing countries on a free trade blueprint that are supposed to culminate in December.