EU challenges U.S. to cut off Boeing subsidies

BRUSSELS, Belgium – The European Union said Saturday it was willing to consider “disciplining” government subsidies of European aircraft maker Airbus – but only if the United States does the same for rival Boeing Co.

Responding to President Bush’s threat Friday to challenge “unfair” EU subsidies at the World Trade Organization “if need be,” the EU’s head office noted that “constructive discussions” were already under way between the two sides.

Those talks must cover indirect and “more recently direct” subsidies to Boeing if changes are to be made to the government-backed loans Airbus receives for launching new models, EU spokeswoman Ewa Hedlund said.

“Indeed, the EU has as strong an interest in disciplining government support to Boeing as the U.S. administration has in disciplining support to Airbus,” she said.

Bush, campaigning for re-election, raised the issue during a stop in Washington state, where some 40,000 Boeing workers have lost their jobs over the past three years.

Allegations of unfair subsidies, which date back decades, have heated up recently as the market for commercial airliners has shrunk and competition has tightened. Airbus has booked the most orders in four out of the past five years, and last year delivered the most airliners for the first time, 305 planes versus 281 for Boeing – less than half its level in 1999, when U.S. airlines were riding high.

A 1992 trans-Atlantic civil aviation accord prohibits production subsidies and limits government loans for developing new models to 33 percent of the total cost.

Boeing charges that Airbus gets the loans at below-market rates – something the EU denies – and notes that Airbus doesn’t have to pay them back if the models are not profitable, thus skewing the competition.

The EU charges that Boeing, the world’s largest aerospace company, has long enjoyed indirect subsidies through government contracts in defense, space and transport – although Airbus’ parent firms, EADS and BAE Systems, do similar work.

More recently, questions have been raised about the $3.2 billion incentive package Washington state offered in December to secure the Everett assembly plant for Boeing’s new 7E7 Dreamliner.

In December, Airbus also said it was gathering information about government loans and subsidies promised to Japanese companies lined up for about a third of the manufacturing work for the 7E7, including engineering firms Mitsubishi, Kawasaki and Fuji.

After meeting with Boeing executives on Friday, Bush said he has instructed U.S. Trade Representative Robert Zoellick to inform European officials of the U.S. position when talks resume in September on updating the 1992 accord.

“We think these subsidies are unfair, and that (Zoellick) should pursue all options to end these subsidies, including bringing a WTO case if need be,” Bush said. “We think these subsidies should end.”