Warring parties agree 90-day 'ceasefire' as they attempt to negotiate their way through subsidy quagmire
Europe and the USA are still prepared to risk a full World Trade Organisation (WTO) dispute despite agreeing to halt litigation for three months while they try to negotiate an agreement to end subsidies for large commercial aircraft (LCA).
Tensions remained high even after the agreement to negotiate was announced on 11 January, with the Office of the US Trade Representative (USTR) forcibly rebutting claims by Airbus chief executive Noël Forgeard a day later that the final agreement would not necessarily outlaw government launch aid.
While confirming that Airbus's application for refundable A350 launch loans is on hold while the negotiations are under way, Forgeard says: "The basis of the agreement is that there will be a joint definition of what is acceptable, and what is not acceptable. The basis is not necessarily that there will be no support, but that there will be a level playing field." The USTR responded by reaffirming that the USA will not agree to new launch aid, which it considers illegal under WTO subsidy rules.
Although debate continues over whether the intent is to eliminate all state aid, the decision to negotiate and not litigate has been widely welcomed, with both sides claiming victory. "I determined that it was essential for both sides to find a negotiated outcome to the dispute," says Peter Mandelson, new European trade commissioner, while his US counterpart, Robert Zoellick says: "For the first time in this long-standing dispute, the USA and the EU have agreed that the goal should be to end subsidies." Mandelson pays tribute to Zoellick for "his boldness both in triggering this dispute and then finding with me a basis of negotiation".
The objective of the negotiations is to secure "a comprehensive agreement to end subsidies to large commercial aircraft producers in a way that establishes fair market competition for all development and production of LCA in the European Union and USA". Negotiators have three months to reach an agreement, during which there will be a standstill on WTO litigation and on new government support commitments.
A senior member of the European negotiating team says the 90-day "ceasefire" was set deliberately short to ensure that the USA is genuine in its desire to scrap subsidies and not merely using the freeze on launch aid during the negotiating period to hinder development of the A350, Airbus's competitor to the Boeing 7E7. "If we fail to find a solution within 90 days we could approve member states' A350 launch aid and the USA will launch its WTO case," says the official.
While they are negotiating, the two sides have agreed not to request the establishment of WTO panels to hear their respective cases. The WTO says the 90-day limit is self-imposed by the two sides and still falls within the bilateral dispute settlement phase. "The EU and USA have not withdrawn their cases from the WTO, so at the end of the three-month period they could in theory decide to re-active the processes," says a source at the Geneva-based trade body.
With Europe arguing that its direct aid to Airbus is more than offset by indirect US government support for Boeing, negotiators have been tasked with agreeing a list of which subsidies should be prohibited, actionable or permitted. "To sharpen the focus of our work, we have further agreed to use the definitions and framework of the WTO subsidies rules as the basis for an agreement," says Zoellick.
The WTO's subsidy restrictions are tougher than those in the 1992 LCA agreement, from which the USA withdrew unilaterally late last year. Additionally, Zoellick says, use of the WTO's definitions should help "multilaterise" the agreement over time. The negotiating terms call for a bilateral deal between the EU and USA initially, but with both parties to work together to seek an early extension of the agreement to include other countries manufacturing civil aircraft or participating as significant risk-sharing partners of Airbus or Boeing. The EU cites Japan, which is to provide government support for industry involvement in the 7E7 programme.
Significantly, the eventual deal is intended to have the teeth that the 1992 LCA agreement lacked, with compliance by both sides to be enforced through funding transparency requirements and strong dispute settlement procedures.
The governments of France, Germany, Spain and UK have provided launch aid for up to 33% of the development cost of Airbusaircraft, including the A380. Previous refundable loans have proved to be a "fantastic investment", says the EC source, asthey have been repaid with interest. European negotiators believe much of the $17 billion the USA says governments have granted Airbus in aid since 1990 will be in this category, and thus be legal.
"There is nothing that has been agreed that can lead us to conclude that refundable loan support is a thing of the past," says Philippe Delmas, Airbus vice-president for government relations and external affairs. This contrasts with the US view that launch aid is illegal under WTO subsidy rules. Delmas acknowledges that development of the A350 would be "slightly cheaper" with government loans.
"Airbus has filed for refundable launch loans for the A350, but they will remain asleep to let EU-US discussions take place," says Forgeard. The new twinjet "will proceed anyway", he says, and is not dependent on launch aid, but "we had to [apply] to defend our rights". Forgeard expects launch loans "will be replaced with something else in the end".
‘Negotiate, not litigate' - terms of the EU-US deal
Secure an agreement to end subsidies in a way that establishes fair market competition for large commercial aircraft;
* using the WTO's definition of subsidies, reach agreement on which are prohibited, actionable or permitted;
* negotiate agreement within three months, during which time there will be no WTO litigation or new government support commitments;
* apply agreement to the EU and USA initially, but subsequently broaden it to include other countries with civil aircraft industries or risk-sharing roles;
* enforce through transparency and strong dispute settlement procedures.
REPORT BY MAX KINGSLEY-JONES IN PARIS, HELEN MASSY-BERESFORD IN LONDON, GRAHAM WARWICK IN WASHINGTON DC AND JUSTIN WASTNAGE IN BRUSSELS
Source: Flight International
