September 14, 2010 / 10:48 PM / 9 years ago

Analysis: WTO unlikely to dampen U.S. push over Airbus

WASHINGTON/PARIS (Reuters) - Europe could win a partial comeback victory in a row with the United States over aircraft subsidies in a new trade verdict this week, but the move looks unlikely to stop U.S. pressure over aid for Airbus EAD.PA.

In a confidential interim ruling to be handed to the parties on Wednesday, the World Trade Organization is expected to back some European claims that Boeing (BA.N) benefited unfairly from research deals or fiscal aid, sources on both sides said.

But agreement over what this means for the world’s largest bilateral trade dispute and the global battle for plane sales ends there, with both sides anxious to protect their positions in a parallel case the U.S. is so far winning against Airbus.

“This will explode the myth that Boeing exists purely on its own capital. Seeing Boeing cited as a state-supported company will be Europe’s biggest victory in the case,” forecast a European source familiar with it.

Maggie Bergsma, an Airbus spokeswoman, predicted the ruling would confirm Boeing has received “billions of illegal subsidies” over the years.

The United States, however, will argue that the impact of any losses it incurs in this case will be dwarfed by the effect on Airbus if a WTO finding stands that European subsidies to the company are illegal.

“We fully expect that when you put the two findings next to each other, there will be no comparison,” said a source in the United States familiar with the case.

The Geneva-based WTO ruled earlier this year that Airbus had benefited from billions of dollars of European subsidies including illegal export aid for the A380 superjumbo under a system of government loans the U.S. calls “launch aid.”

Both sides are appealing the verdict — the EU wants it overturned and the U.S. wants the finding against previous aid extended to all such European payments in the future, including probable loans for the upcoming Airbus A350.

Wednesday’s report, which some say could run to 1,500 pages, is the first draft verdict by a separate panel of trade judges on a counter-claim brought by the EU alleging $24 billion in unfair federal, state and local support for Boeing.

“The U.S. is vulnerable on a number of fronts, but there’s nothing quite as obvious as (EU) launch aid,” said Richard Aboulafia, vice president of analysis at Teal Group.

“But at the end of the day it doesn’t really matter who is more or less vulnerable, because there’s very little chance that either side will change their behavior.”

CALL FOR TALKS

The report is meant to be confidential for several months but such findings have often been subject to selective leaks.

Its timing is crucial as the two planemakers compete for a deal worth up to $50 billion to sell aerial tankers to the U.S. Air Force, with Boeing backers in Congress pushing for Airbus to be penalized over subsidies on its proposed plane.

European officials hope even a partial victory in their counter-suit will grant them a moral victory and level the playing field politically with Boeing over subsidies, paving the way for a negotiated settlement of the decade-old dispute.

They say failing to agree new rules would only help fast-rising plane manufacturers in China, Russia and Japan as well as more established competitors in Canada and Brazil.

The former EU Trade Commissioner who launched the European counter-complaint, Peter Mandelson, called in an interview published on Monday for an end to a “pointless feud.”

The United States has so far rebuffed calls for talks unless Airbus abandons plans to tap governments for more loans for its next plane, the A350, and is prepared to discuss ending “launch aid.”

Airbus, owned by EADS, rejects any preconditions.

Most analysts say Wednesday’s report is unlikely to lead to any immediate shift in these positions, even though many expect an eventual settlement.

“The decision I expect will not by any means even the scales in terms of the amount of the leverage the United States obtained” in its case against subsidies for Airbus, said John Magnus, a trade lawyer at Miller Chevalier in Washington.

In the case against subsidies for Boeing to be decided Wednesday, the EU claims the U.S. aircraft manufacturer benefited from “sham” research deals from NASA and the Pentagon worth $17 billion, helping it make the revolutionary Dreamliner.

It says Boeing reaped $4.9 billion in state and local tax breaks, including a $3.5 billion leg-up from Washington state.

The United States counters that Boeing received nothing for free, that government research contracts only fostered generic study and that the EU in any case exaggerated their effects.

It argues tax incentives were not tailor-made for Boeing and much of the money the EU objects to did not reach the company.

Editing by Jerry Norton

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