UPDATE 3-EU seeks $12 bln trade sanctions on U.S. in Boeing row

Thu Sep 27, 2012 11:59pm IST

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* EU request is part of its counter complaint vs U.S.

* U.S. in 2004 filed case against EU on Airbus support

* Analyst: both sides unlikely to win full sanctions sought

By Tom Miles

GENEVA, Sept 27 (Reuters) - The European Union on Thursday asked the World Trade Organization for the right to impose trade sanctions worth up to $12 billion annually on the United States in retaliation for illegal U.S. subsidies to planemaker Boeing .

The request, which is the largest penalty ever sought from the WTO, is the latest legal move in what is the world's biggest trade dispute and one of the longest.

The wrangling dates back to 2004, when the United States filed a case challenging European support for Airbus and the EU responded with a counter complaint against U.S. support for Boeing.

Since then, both sides have won WTO victories against each other's programs, although they continue to argue over the significance of the decisions.

The U.S. case is ahead of the EU's in the process, and the United States has already said it could seek up to $10 billion in sanctions on the EU for not eliminating illegal European government support for Airbus, which is owned by European aerospace group EADS.

The EU said in a statement that its action on Thursday follows its "assessment that the United States had not lived up to its obligation to remove its illegal subsidies in the aircraft sector, as required by the WTO rulings that clearly condemned U.S. subsidies to Boeing."

The figure of $12 billion was "based on estimates of the damage suffered by the EU due to unfair and biased competition from the U.S. industry", it added.

Airbus said the figure was justified by the WTO's finding that the effect of the "particularly pervasive" subsidies was significantly larger than their face value. It also said that the launch of Boeing's 787 aircraft would not have been possible without illegal subsidies.

"It is the largest WTO penalty ever requested and it follows the worst loss a party has seen in the history of the WTO," Airbus said in a statement.

Nkenge Harmon, a U.S. spokeswoman for the U.S. Trade Representative's office, took issue with the suggestion the United States had suffered a bigger loss at the WTO than the EU in the two competing cases.

"The WTO found that the EU granted $18 billion in subsidized financing, which caused 342 lost sales for the United States. The WTO found 2-4 billion dollars, mostly in subsidized research, against the United States, with 118 lost sales for Airbus," Harmon said.

U.S. officials also expressed confidence that the WTO would agree it has ended its illegal support for Boeing but find that the EU has continued to provide illegal support for Airbus planes such as the A350 and the A380.

The deadline for the United States to comply with the WTO ruling was last Sunday, but the EU has rejected U.S. assurances that the handouts have stopped.

"We regret that Boeing continues a legal battle that should have long been resolved by a mutual agreement. We made offers time and again, but are ready to fight it through if the other side wishes to do so," Airbus spokeswoman Maggie Bergsma said.

A Boeing spokesman said the statements from both the EU and Airbus "were riddled with errors."

It is unlikely either side will get WTO authorization for the full amount of sanctions they have requested, said Gary Hufbauer, a senior fellow at the Washington-based Peterson Institute for International Economics.

Still, the prospect of a damaging trade war looms at the very time that Washington and Brussels have been working toward a decision at the end of this year on negotiating a transatlantic trade pact, Hufbauer said.

If the two sides can't negotiate "a new compact" to resolve the Boeing-Airbus dispute and instead end up slapping duties on each other's goods, there is little hope that they can reach agreement on a broader trade pact, he said.

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