EU ultimatum on aircraft aid

Date: 29/05/1997

By Chris Johnstone

THE EU has put itself on course for a trade war with the United States by warning that it will ignore a long-standing agreement governing aircraft subsidies unless changes are made to the existing rules.

EU negotiators say they that will disregard the five-year-old accord and accept the consequences if they cannot get an agreement with the US on tightening up aid discipline by the end of June.

The ultimatum - and the related issue of planemaker Boeing's 10-billion-ecu take-over of former rival McDonnell Douglas - cast a shadow over the all-smiles summit meeting between EU leaders and US President Bill Clinton this week.

Competition Commissioner Karel van Miert is threatening tough conditions if the Boeing take-over is to be cleared after warning that the deal itself and Boeing's penchant for signing long-term supply contracts with airlines could give the world's number one aircraft manufacturer a dominant position which would damage rivals and consumers.

Van Miert's spokesman says the trade and competition issues are not linked.

But among the doubts highlighted by the Commission's investigation into the deal are the likelihood that Boeing could suck up the millions of dollars of aid that used to be aimed at McDonnell Douglas and might offer governments a seductive package of defence contracts in return for civil aircraft orders. The Commission will give its verdict on the Boeing deal by the end of July.

The Union's decision to set a separate deadline for action on subsidies follows anger that US trade negotiators have failed to respond to demands for a review of the agreement after top EU officials raised their worries in Washington six weeks ago.

US trade officials say they do not see the need to re-examine the existing agreement and warn that its disappearance could reawaken dormant trade disputes about past European aid to the world's second biggest civil aircraft producer, the four-nation Airbus Consortium.

Boeing adds that it is happy with the current subsidy discipline, but cautions that the US could push for tougher conditions on European aid if the matter is opened up.

Some American officials suggest the EU may be stirring up the subsidy issue - and using the Boeing take-over as leverage - because it is seeking more leeway for the Airbus Consortium to receive support when it launches its new large aircraft, the A3XX.

The 1992 bilateral agreement at the centre of the dispute sets limits on the direct aid which European governments can give to Airbus for building new types of plane. This is balanced by ceilings on the amount of indirect spin-off aid from US government military and space projects the country's biggest aircraft producers can obtain for their civil aircraft programmes.

The Airbus consortium is made up of Germany's DASA, France's Aerospatiale, the UK's British Aerospace, and Spain's CASA.

EU trade officials claim the Americans ignored their part of the deal as soon as the ink was dry on the paper. “It has become a complete nonsense.

There is profound frustration on the EU side and inside the four governments (Germany, France, the UK and Spain) about the way the US interprets this agreement,” said a source.

They also claim the US government has blatantly become a 'super-salesman' for Boeing and used its military and diplomatic muscle to snatch multi-million-dollar aircraft contracts away from the Airbus Consortium in Saudi Arabia and Japan.

The EU says it has nothing to fear from the re-launch of past trade disputes over Airbus aid within the World Trade Organisation. “If the US went for a panel today, its chances would be slim. There are rumours that the EU itself could be looking to launch procedures against the US,” said one source.