Airbus, Boeing Dispute Could Become US-EU Problem

Airbus Chief Noel Forgeard seldom wastes an opportunity to let the competition from Boeing know they are second best.

The European association finished 2004 with more orders than their American competitor, and its much hyped A380 jumbo jet was unveiled early this week to great fanfare. Boeing, which is also planning to unveil a new jumbo jet, has accused its European competitors of receiving unfair government subsidies to launch their recent aircraft projects and is threatening to take the issue before the World Trade Organization.

Last Fall, in the midst of a bitter re-election campaign, U.S. President George W. Bush cancelled a 1992 agreement between America and the European Union that structured the flow of subsidies for the aerospace industry.

"What the Americans realized is that Airbus isn't just a big competitor, but the worldwide market leader," said Claude Veron-Reville, the spokesman for the EU Commission. "And that is totally different from the 1980s."

Billions in subsidies on both sides

The 1992 agreement allowed Airbus owners France, Spain, Great Britain and Germany to extend credit to cover one-third of the cost of aircraft development. But the big four were able to cover more than €3 billion ($3.9 billion) of the new jumbo jet A380's development, and Washington said they did it with low-interest loans.

Forgeard said Airbus has paid back any loans, with interest. In turn, the EU accused the US government of funnelling billions of dollars in indirect subsidies to Boeing through its defense contracts and state tax breaks and has filed a formal complaint with the WTO.

Before things got too far, Bob Zoellick, the US Trade Representative, sought to mediate the dispute in early January, setting up negotiations between him and the EU Trade Commissioner Peter Mandelson. The EU is hoping to convince Washington over the next three months that both sides should end subsidies for the aerospace industry altogether.

But the European countries behind Airbus also have a vested interest in providing subsidies to the company: Production of the A380 alone employs 40,000 people in Germany.

Keep it low profile

German Chancellor Gerhard Schröder couldn't resist a jab at Washington at the A380's unveiling in Toulouse on Tuesday. The "European flag" should be held high during negotiations with the U.S., he said, and said Airbus needs to be ready to open itself up eastward, to Russia.

At the moment, EU Commission President Jose Barroso seems relieved that the transatlantic dispute remains under the radar ahead of Bush's visit to Brussels in February.

"A trade dispute should not influence other political fields," he said. "Let's try and solve the problem. If we can't, then let's not let the transatlantic dialog suffer."