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U.S.-EU Airbus Talks Hit Snag

Mon Mar 21, 2005 7:44 am

WSJ 03/19/05:

"BRUSSELS -- The European Union on Saturday accused the U.S. of needlessly breaking off talks on eliminating government subsidies to aircraft makers and said it hopes the two sides can return to the negotiating table.

The office of the United States Trade Representative said on Friday that the talks have hit a major snag and E.U. negotiators appear to be backtracking from an agreement reached in January to resolve the matter.

"I regret this unilateral action in breaking off the negotiations. It is premature and unnecessary," E.U. Trade Commissioner Peter Mandelson said in a statement...

....Washington and Brussels appeared likely to send the dispute to the World Trade Organization's dispute-settlement body until January, when they gave themselves three months to try and negotiate a resolution -- a deadline to expire on April 11.

But tensions appeared to reach a new high on Friday after a discussion between Mr. Mandelson and U.S. Deputy Secretary of State Robert Zoellick. Until recently, Mr. Zoellick was the U.S. trade ambassador. He is still taking the administration lead on the dispute.

"Despite our best efforts, it's clear the E.U. is unwilling to eliminate launch-aid subsidies," said Richard Mills, a spokesman for the Office of the U.S. Trade Representative.

Airbus concedes such loans, offered to help develop new aircraft, reduces its financing costs, but argues it does not constitute a subsidy because it is repaid to governments with interest as well as a share of future aircraft royalties.

A senior U.S. official, speaking on background, said the E.U. is trying to broaden negotiations to reflect E.U. concerns that Japan unfairly subsidizes a Boeing parts supplier, among other things.

The E.U. counters that the U.S. also grants subsidies to Boeing in the form of defense and research contracts. Airbus is 80%-owned by European Aeronautic Defence & Space Co. "I fully understand the difficulties, but I think we could have overcome them with further effort," Mr. Mandelson said.

"I am happy to return to the negotiating table and perhaps the new U.S. trade representative will look at that," Mr. Mandelson said, referring to Mr. Zoellick's successor. This week, President Bush named Rob Portman, a Republican congressman from Ohio, to the post. It wasn't clear when or if talks could resume or if an agreement was still possible by April 11.

Mr. Mills said the U.S. is prepared to "return to litigation" if the E.U. tries to break the terms of the January agreement or refuses to extend the deadline for talks."

[Edited 2005-03-20 23:49:54]
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