Europe and the USA may realise their Airbus versus Boeing subsidies battle is headed for stalemate, but the chances of negotiations on a settlement beginning any time soon look slim.

The problem is timing, not only of the World Trade Organisation ruling on the rival subsidies disputes, but also of the US Air Force naming a winner in its KC-X tanker contest, which pits an Airbus against a Boeing.

A final WTO ruling in the US dispute settlement case against the European Union (DS316) was expected before year-end, but has been delayed. A ruling in the EU case against the USA (DS353) is expected in mid-June 2008. The tanker decision, meanwhile, is expected in January or February.

Although the USAF has made clear the WTO dispute is not a factor in the KC-X competition, Airbus's top US executive has accused Boeing of being unwilling to back a negotiated settlement while it tries to use the subsidies issue to undermine political support for the rival tanker.

True or false, Airbus North America chairman Allan McArtor's accusation underlines the fact that negotiations between Europe and the USA on settling the subsidies dispute will not begin until both companies are ready.

INEVITABILITY

Airbus clearly is. "We are going to have to negotiate anyway, so why not start now?" McArtor said in October. "We should start by agreeing what is acceptable government support between us [Airbus and Boeing] first, so we can then provide meaningful guidance to our [European and US] trade representatives."

Boeing prefers to wait until the WTO rules on the US case, convinced the panel will find European launch aid for Airbus to be an illegal subsidy. Such a ruling, widely expected, would strengthen Washington's hand at the negotiating table - but could prompt Brussels to stay away until the WTO rules on the EU case.

Most observers believe the WTO will uphold at least part of the European case, and recent US efforts have focused on discrediting as much of that case as possible to ensure the ultimate balance of the damage wrought by subsidies is firmly in its favour.

"Losing is relative, not absolute," says Bob Novick, a trade lawyer advising Boeing.

While the US case is built around its estimate of $15 billion in launch aid to Airbus, the EU's retaliatory dispute is based on a diverse portfolio of federal, state and local government support that adds up to $23.7 billion in alleged subsidies for Boeing. Brussels' task in convincing the WTO that all of that support is specific to Boeing and damaging to Airbus looks more complex.

The EU presented its challenge to US subsidies for Boeing to the WTO in September at the first panel hearing for case DS353. The bulk of the $23.7 billion is made up of $12.8 billion in NASA and US Department of Defense funding for research and development relevant to large commercial aircraft $4.9 billion in Washington, Kansas and Illinois state and local tax breaks and other incentives $3.1 billion in NASA and DoD reimbursement for independent R&D and proposal costs and $2.2 billion from the already-outlawed FSC/ETI export tax break.

MAKING THE CASE

Whereas Washington, in principle, need only make the case that launch aid is illegal to win its dispute, the EU has to present a convincing argument in each category that the support is a subsidy that harms Airbus. Some will be easier that others - even the US side seems to accept that Washington state's tax-rate reduction will be ruled illegal.

But if the USA is successful in chipping away at the EU case, the balance of damage could tip in its favour, influencing the negotiations that will follow.

Dispute noses towards stalemate, but a settlement is no closer

The WTO ruling could change the way commercial aircraft programmes are funded: flightglobal.com/wto




Source: Flight International