UPDATE 4-EU rejects U.S. claim to have weaned Boeing off subsidies

Wed Sep 26, 2012 7:14am IST

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* U.S. says 'confident' it has complied with WTO ruling

* EU action is latest chapter in long-running saga

By Tom Miles

GENEVA, Sept 25 (Reuters) - U.S. aircraft giant Boeing is still getting U.S. subsidies despite Washington's claim to have stopped the handouts, the European Union said on Tuesday in the latest round of the world's biggest trade dispute.

The EU's claim came one day after the U.S. Trade Representative's office said it had complied with a ruling by a World Trade Organisation dispute panel that found Boeing had benefited from illegal payments. The United States had until Sept. 23 to comply.

"We had expected that the U.S. would have finally complied in good faith with its international commitments and would have abided by the WTO rulings that clearly condemned U.S. subsidies to Boeing", EU Trade Commissioner Karel De Gucht said in a statement.

"We are disappointed that this does not seem to be the case. So, the U.S. leaves us with no other choice but to insist on proper compliance before the World Trade Organisation. We are confident that this process will finally lead to a level playing field in the aircraft sector."

A spokeswoman for the U.S. Trade Representative's office said the United States was confident it has fully complied with the WTO ruling against U.S. subsidies for Boeing, but was still studying the EU's claim it had not.

"Based on our initial review, the EU simply does not account for many of the changes announced by the United States. For example, the EU included programs in its request that we made clear have been terminated," USTR spokeswoman Andrea Mead said.

The U.S. has set out very clearly how it had complied with the WTO ruling, and the numerous steps it has taken to insure full compliance, Boeing spokesman Charlie Miller said.

The U.S. is still trying to stop European governments from subsidizing Airbus, including so-called launch aid for the Airbus A350 jet, Miller said.

"There is a crystal clear ruling against launch aid subsidies, yet the European governments are continuing to provide illegal subsidies for development of the A350," Miller said. "The U.S. government is pursuing the WTO processes necessary to bring an end to these subsidies and Boeing fully supports the actions that the government is taking."

The EU's latest complaint is likely to result in meetings between the two sides about the EU case against the U.S., Miller said. At the same time, compliance hearings on the U.S. case are also taking place. "That is moving ahead rapidly," Miller said. "It is likely that the compliance panel will make a ruling in the next few months."

A U.S. industry official, speaking on condition that he not be identified, said the EU appeared to have decided to challenge the U.S. submission before it was even filed.

Typically, a country would first ask for more information and only take action if still dissatisfied, he said.

TRADE BATTLE

The EU's complaint is part of a seven-year trade battle over subsidies for Boeing and Airbus. Washington and Brussels have both won WTO rulings that the other paid billions of dollars of illegal subsidies to its aircraft industry.

Both have claimed victory every step of the way. Boeing says the subsidies paid to Airbus were much bigger, while Airbus claims the U.S. breach of the rules was much more heinous.

The United States case claims the EU failed to withdraw subsidies for Airbus as required by Dec 1, 2011, and triggered a WTO arbitration to claim up to $10 billion. That process is effectively frozen until the two sides have exhausted other legal avenues.

Many trade experts expect the two sides to attempt to negotiate a settlement as the legal appeals and counter-appeals become increasingly entangled.

Such a deal could pave the way to wider agreement on subsidising large civil aircraft, involving China, Japan, Brazil, Canada and Russia, which joined the WTO last month.

The industry is so capital-intensive that some experts say it is impossible to build big planes without government help. A global pact could set rules for subsidies, avoiding future spats among WTO members where airliners are built.

Frederico Curado, chief executive of Brazilian planemaker Embraer, told Reuters on Tuesday he hoped such an agreement would follow resolution of the Airbus-Boeing dispute.

Speaking on the sidelines of a WTO conference, Curado recalled a dispute between Brazil and Canada on aircraft financing 12 years ago that led to the creation of an agreement on aircraft financing, the Aircraft Sector Understanding.

"Hopefully from those two (WTO dispute) panels between the EU and United States, a similar framework agreement, a framework governance, could be reached. I think it will be important for the whole industry.

"Not only for the EU and U.S. but also for Brazil, for Canada, for Japan, for China and Russia, especially in those two countries with a state of capitalism where the frontier between a company and the state is very blurred. So something like that would be very important."

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