really off the mark? Well, it seems that Airbus has dramatically changed their tune regarding launch aid (subsidies) and whether this matter should go before the WTO. What do you attribure the change to?
EU, U.S. Eye Commercial Aircraft Deal in Three MonthsAviation Week & Space Technology01/17/2005, page 394
Robert WallWashington
Douglas BarrieLondon
Pierre SparacoParis
World Trade Organization case and A350 aid have been put on ice temporarily
CEASE FIRE
The European Union and U.S. face a complex task as they try to bridge deep differences while forging a new accord concerning financial assistance for commercial aircraft. Still, all parties involved express relief that, for now, a trade war has been averted.
Nearing an ugly conflict, both Washington and Brussels stepped back from a World Trade Organization dispute, and the uncertainty that a WTO process would have meant. Instead, the two plan to try to craft a framework replacing the 1992 agreement on large civil aircraft subsidies, which the U.S. declared void last year.
The commitment to talk, following a period of animosity, is the first cause for even cautious optimism. However, European sources warn a gulf has yet to be bridged between the two camps pending any agreement.
U.S. Trade Representative Robert Zoellick and EU Trade Commissioner Peter Mandelson sealed the deal after staff-level talks appeared stalled, according to officials. A European trade specialist suggests one difficulty at the staff level was an inability to even begin to find grounds for a compromise.
THE BRIEF THREE-MONTH WINDOW puts pressure on negotiators, given the breadth of issues the parties are committed to addressing, acknowledges a senior U.S. trade representative. After the three months expire, either party is free to pursue WTO action. However, the U.S. official notes that if an agreement appears imminent, the negotiating period could be extended. The time allotted for these talks is far shorter than the discussion period that led to the 1992 agreement.
Besides pledging to talk further, the parties have also established parameters for the discussions, giving each side an early victory. For example, the U.S. has elicited a commitment from the EU to hold off on providing launch aid to Airbus for the A350. Any additional government funding that might be sought for A380 to cover cost overruns is also on hold.
Airbus Chief Executive Noel Forgeard says the U.S.-EU commitment to negotiation "will review support vehicles and determine what is acceptable, what is forbidden." He stresses that the proposed A350, tentatively set to be launched in the next six months, is not linked to government funding. "The A350 will proceed anyway and we are now gathering launch customers," he adds.
The A350 plan includes unspecified government funding. "This has been frozen. If [government support is] not implemented, it would be replaced by something else," Forgeard says.
European officials also say both sides intend "to seek early extension of the agreement between them to third countries, notably those involved in significant risk-sharing production for either Airbus or Boeing." Airbus officials maintain that Boeing gets unfair benefit from the assistance its major Japanese subcontractors receive from the Japanese government. U.S. officials acknowledge that bringing in other parties is on the agenda, but note those negotiations would come after any initial agreement.
THE TWO SIDES HAVE COMMITTED to using the WTO's definition of "subsidies," as spelled out in its Agreement on Subsidies and Countervailing Measures. These are further divided into two categories: prohibited and actionable. The civil aircraft case largely revolves around "actionable" subsidies. Using the WTO definition as a baseline is viewed as a success by U.S. officials, who argue the support given Airbus is more directly affected than any aid Boeing receives.
But the detailed definition of what assistance is allowed or disallowed is at the heart of the upcoming talks. "The way we want to achieve progress on this issue is to establish a list of different kinds of subsidies affecting either of the two companies [Boeing and Airbus] and to then reach agreement on which form should be prohibited, actionable or permitted," according to an EU representative.
Tax breaks offered to Boeing by Washington State and other jurisdictions to build the 7E7 could be affected by the ongoing trade discussions.Previously, Washington and Brussels failed to even edge toward a compromise on defining "repayable launch aid" (blasted as a subsidy by the U.S.) or the "indirect support" that Europeans charge Washington unfairly gives Boeing in the form of research and development contracts.
The U.S. trade official says the Europeans will be allowed to make their case that R&D spending, so-called indirect support, is a subsidy, but he notes that Washington continues to reject that definition.
Forgeard signaled that the Europeans are not wavering from their longtime stance. "Refundable loans are part of Europe's commitment to aerospace," he notes. Moreover, he argues that Boeing's relatively modest investment in R&D, about 3% of the company's revenues, indicates that the Europeans' rival benefits from sizable indirect support.
Similarly, Philippe Delmas, Airbus vice president for external affairs, notes that "nothing can lead us to the conclusion that refundable loans are something from the past. The U.S./EU agreement involves a [discussion] of methodology, a round of negotiations. When a solid framework is achieved, I expect we will have a basis for further discussions."
Another point of contention involves tax breaks that Boeing has garnered domestically. The U.S. trade official concedes that any accord limiting such incentives would likely address both federal and state tax breaks. Airbus backers have complained loudly that Boeing benefits unfairly from such measures offered by Washington State and other locales.
A European industry official also cautions that the stated objective--"to secure a comprehensive agreement to end subsidies to large civil aircraft producers in a way that establishes fair market competition for all development of production"--echoes wording that eventually led to the controversial 1992 pact. Still unclear is whether, after three months, both sides will actually have agreed to end subsidies or have merely put in place a process to phase them out.
HOWEVER, ONE STEP in which both appear interested is establishing a dispute-settlement mechanism. The absence of such a device was seen as a major shortcoming of the 1992 arrangement, leaving both sides to accuse the other they were violating their gentlemen's agreement. The format of the dispute-settlement mechanism remains to be defined in the coming weeks.
The industrial parties most directly affected by the deal have voiced support for the program. The agreement to continue talks "is a very positive step forward, but much work remains to be done to ensure a level playing field in the commercial aircraft market," EADS Co-CEOs Philippe Camus and Rainer Hertrich said in a statement.
Boeing President and CEO Harry Stonecipher--whose initiative last year essentially led to the U.S.' October filing with the WTO--notes that "Boeing is encouraged by the good faith displayed by both governments, as evidenced by their understanding not to provide additional development and production support and to refrain from pursuing WTO litigation during the time they are negotiating. In addition to ending subsidies, we also welcome the expressed intent to incorporate into an agreement transparency and strong dispute-settlement procedures."
