Subsidy squabble reaches a hang-up

You know, it’s never a good sign when your top-level trade negotiators hang up on each other.

It’s an even worse sign when they can’t agree on who hung up on whom.

Then again, maybe it’s just business as usual in the long-running trans-Atlantic argument over aerospace industry subsidies.

In case you were busy watching Wisconsin-Milwaukee bust up your NCAA tournament bracket over the weekend, here’s a quick re-cap.

Last fall, the United States threatened to sue the European Union before the World Trade Organization over the billions of dollars European governments have given Airbus to help it design and launch new jets.

European officials threatened to countersue, saying the Boeing Co. improperly benefits from U.S. government subsidies, including the $3.2 billion state business and occupation tax break the Washington Legislature used to entice the company to build its 787 in Everett.

In January, the two sides agreed to step back for 90 days and try for an out-of-court settlement.

But on Friday, European trade representative Peter Mandelson and former U.S. trade chief Robert Zoellick got into a shouting match on the phone that ended with one of them hanging up on the other.

That’s about all everyone can agree on.

Officially, the U.S. government says Mandelson “terminated” Friday’s phone call, but even so, “we are at the table,” U.S. spokesman Richard Mills told Agence France-Presse. “The Europeans keep wandering away from the table, straying farther and farther.”

European negotiators say they don’t think they hung up on the Americans.

“It is not our view that we put an end to this conversation,” Mandelson’s representative, Claude Veron-Reville, told reporters in Bruseels Monday. “The ball is in the Americans’ court, and we are waiting for them to clarify their position,” she said.

I suspect the U.S. position is that the Europeans can go flap their ailerons. But that’s not a good negotiating technique.

To sort this out, I called Teal Group analyst Richard Aboulafia, whose George Washington University Colonials went out of the Big Dance in Round 1, by the way.

His take on it: We should have seen it coming.

The view in Europe last fall was that:

* Boeing chief executive Harry Stonecipher was on Capitol Hill stirring up the pot on Airbus subsidies in order to obscure Boeing’s problems getting the 767 tanker deal through Congress.

* President Bush went along with it only because he was in a tight re-election campaign and needed the support of Boeing workers to win Washington state and its 11 electoral votes.

Now Stonecipher’s gone, Bush has another four years in office and Zoellnick, the U.S. trade negotiator, has changed jobs to become deputy secretary of state and is only filling in on the Boeing-Airbus talks until a replacement can be named.

Given all that, Aboulafia said, Europeans were naturally thinking that the United States and Boeing had lost interest in the talks, so “all we have to do is stand our ground and it’ll go away.”

“They were probing for a weakness,” Aboulafia said. “There’s always an element of power politics in these negotiations.”

What happens next?

The United States needs to make some sort of “resolute gesture” – say, a phone call from Secretary of State Condoleezza Rice to her EU counterpart to underscore that, yes, we’re still serious about this.

At that point, the Europeans will “figure out the issue has legs, and they’ll go back to the negotiating table,” Aboulafia said.

Strangely enough, Boeing and the United States have an ally in Europe. The editorial board of London’s Financial Times newspaper said Tuesday that both sides need to “take a deep breath and calm down.”

Then Airbus needs to give up on more launch aid, the Financial Times editors said.

“Airbus’ unique subsidy is an especially blatant violation of the principles of fair competition,” they wrote. “The EU should let it go.”

Harry Stonecipher couldn’t have said it better himself.

Reporter Bryan Corliss: 425-339-3454 or corliss@heraldnet.com.