EU claims victory in WTO case versus Boeing

GENEVA/PARIS Wed Sep 15, 2010 9:38pm BST

The engine and body of the Boeing 787 Dreamliner is seen at the Farnborough International Airshow 2010 in Farnborough, southern England July 19, 2010. REUTERS/Kieran Doherty

The engine and body of the Boeing 787 Dreamliner is seen at the Farnborough International Airshow 2010 in Farnborough, southern England July 19, 2010.

Credit: Reuters/Kieran Doherty

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GENEVA/PARIS (Reuters) - The European Union said on Wednesday it had won a victory against U.S. government subsidies for Boeing that it hoped would set the stage for negotiated settlement that would allow European governments to continue to help Airbus develop new aircraft.

"I would like to limit myself to saying that the analysis conducted appeared very thorough and its conclusions support the EU's view," EU Trade Commissioner Karel De Gucht said in a statement after a World Trade Organisation panel issued its confidential report.

"A more detailed assessment is needed but I believe even more strongly than before that the question of subsidies to aircraft manufacturers can be settled only by way of negotiations," De Gucht said.

The ruling follows WTO condemnation in June of illegal European subsidies for Boeing rival Airbus. The spat is the biggest bilateral trade dispute ever before the WTO.

Two U.S. sources familiar with the case acknowledged the panel found Boeing had benefited from federal and other subsidies, but to a much lower extent than its European adversaries suggest.

They said the WTO had found subsidies worth about $5 billion (3.2 billion pounds), including $2 billion that already has been subject to an earlier settlement.

The $3 billion or so in new subsidies were mainly linked to historical payments provided to the planemaker by the American aerospace agency NASA, the U.S. sources said.

The EU had argued NASA had helped Boeing by providing research with too little in return.

But a European source said the EU prevailed in most of the $24 billion of claims it had brought over allegations of unfair federal, state and local aid to Boeing.

The report, issued only to EU and U.S. officials, will not be made public until possibly mid-2011.

Boeing argues any aid for which Washington is faulted pales in comparison with subsidies for Airbus that were resoundingly denounced by the WTO in a ruling in a parallel case.

Both sides have appealed various findings in that case.

U.S. trade officials insisted they have long been prepared to sit down with the EU to negotiate a deal.

"We were interested six years ago. We were interested four years ago. We were interested two years ago. And we're still interested," said Nefeterius McPherson, a spokeswoman for the U.S. Trade Representative's office.

TRADE RULES SAID BROKEN

The European source said the WTO judges had backed EU complaints over some $17 billion in research contracts from NASA and the Pentagon, and $4 billion in tax breaks from Washington state.

The WTO judges found these payments broke WTO rules and should be withdrawn, the European source said. The figures were not cited in the report but were derived from adding the respective claims, the source added.

But the WTO dispute panel did not find that aid challenged by the EU was prohibited -- as it did in a ruling in the parallel case against Airbus subsidies brought by the United States.

If the aid had been ruled prohibited, it would have required faster action by Washington to fix it, the source said.

It also dismissed EU complaints over property tax and other measures in Kansas.

USTR called the dispute one of the most complex and lengthy disputes to come before the WTO, but said it could not comment further as the interim report remains confidential.

President Barack Obama will attend the EU-US summit in Lisbon on November 20, providing an opportunity for the two sides to discuss the dispute.

However, the United States wants the EU to drop aid for Airbus' new A350 airliner which it says is similar to the other Airbus support already condemned by the WTO. That stance has been an obstacle to the beginning of talks.

In a statement released earlier on Wednesday, Boeing said the June WTO ruling against the European Union had found that some of the "launch aid" Airbus received from the EU and member states had violated global trade rules.

"We look forward to hearing how the WTO ruled in today's preliminary decision on U.S. practices, none of which have the market-distorting impact of launch aid nor even approach the sheer scale of European subsidy practices," Boeing said.

(Additional reporting by Laura MacInnis in Geneva, Doug Palmer in Washington and Juliane von Reppert-Bismarck in Brussels; Editing by Matthew Jones and Xavier Briand)

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