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MOVES TOWARDS AEROSPACE AID ACHIEVED

TENTATIVE MOVES TOWARDS AEROSPACE AID ACHIEVED

11 Jan 05. The United States and the European Union averted a legal clash over Airbus and Boeing on Tuesday, agreeing to talks on eliminating billions of dollars in subsidies enjoyed by the rival aircraft manufacturers. But, within hours of this announcement, in true French style, Airbus announced that it was asking European Governments for €2bn in launch aid for the A350!

Following is the official text of the terms of the deal between Washington and Brussels to start talks on scrapping subsidies.

1. The objective is to secure a comprehensive agreement to end subsidies to large civil aircraft producers in a way that establishes fair market competition for all development and production of large civil aircraft (LCA) in the EU and U.S.
2. At present, the companies concerned in the EU are Airbus and its principal shareholders, and in the U.S., Boeing.
3. The agreement will be negotiated within three months.
4. (a) The agreement will be negotiated between and apply to the U.S. and EU.
4. (b) These parties will subsequently work together to broaden the agreement to include as parties other countries with civil aircraft industries, or countries with risk-sharing roles relevant to the objective of the agreement.
5. (a) During the negotiations the parties will not request establishment of World Trade Organization panels relating to the pending disputes.
5. (b) During the negotiations, within the timeframe foreseen in paragraph 3 above, the parties will make no new government support commitments for LCA development or production.
6. The parties will use the (WTO) definition of subsidies in the Agreement on Subsidies and Countervailing Measure (ASCM). The parties will agree an illustrative list of subsidies to be covered by the agreement which elaborates the ASCM definition. They will use this list to reach agreement on which form of subsidy should be prohibited, actionable or permitted.
7. The agreement will be enforced through transparency and strong dispute settlement procedures.
8. In negotiating the agreement, the parties will establish agreed terms and conditions under which either may withdraw at a future date. On the one year anniversary of the agreement, the parties will review its operation, including whether progress on international participation in it is sufficient to prevent circumvention of its objectives and to justify its continuation. (Reuters)

Jeffrey Garten in the FT commented on t
he recent breakdown of the 1992 agreement between Boeing and Airbus on how to manage the government subsidies each receives could very soon be referred to the World Trade Organisation for adjudication. It would immediately become the largest and nastiest trade dispute of this decade.

Should a case be filed, transatlantic relations will be further poisoned, just when there is a critical need for co-operation on Iraq, Iran and other explosive political issues. Co-operation between Washington and Brussels, so essential to successful global trade talks, could be undermined. The WTO dispute resolution process could be overwhelmed by the case’s complexity, jeopardising the mechanism’s effectiveness in other issues.

The judicial outcome is already clear: both aerospace companies have taken considerable government handouts. The court will declare both guilty, creating a political stalemate in which both sides will probably ignore the penalties the WTO wants to impose. The US trade representative should nevertheless file a trade action quickly. Here is why: the old agreement is outdated and a new one sorely needed. A formal filing is essential if the two sides are to end their war and get down to serious negotiations. The new civil aviation agreement should be negotiated in parallel with the WTO work, but it should be finished much more quickly, allowing for the complaint to be withdrawn from the Geneva forum. The deal would have five parts that would differentiat

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