New bid to end Airbus-Boeing battle sets stage for next clash. EU says it has ended subsidies but fails to mention aid for A350

Washington: The world's biggest trade dispute, the European-US dogfight over subsidies for planemakers Airbus and Boeing, is set for another round after the EU told the WTO it stopped giving illegal payments, but failed to mention aid for the Airbus A350.

The two aerospace companies, which dominate the $70 billion (Dh257 billion) aircraft market, have been fighting a proxy battle for years through twin court cases brought by the United States and the European Union at the World Trade Organisation.

An appeals panel of the WTO's dispute settlement body (DSB) ordered the EU to end illegal subsidies for Airbus six months ago. The EU had until December 1 to comply and said on Thursday it had done so, but only published its compliance document on Friday afternoon.

The six-page document listed 36 measures that the EU took to comply, and emphasised that all the banned subsidy programmes had come to an end, although it did not say how.

Six models affected

"As a result of this review, the European Union has adopted a course of action that addresses all forms of adverse effects, all categories of subsidies, and all models of Airbus aircraft covered by the DSB's recommendations and rulings," it said, with the word "all" underlined in each case.

Six Airbus models were affected: the A300, A310, A320, A330, A340 and A380, as well as their derivatives, it said. That leaves the A350, the mid-sized carbon-fibre jetliner due to enter service in the first half of 2014.

An EU source said the A350 was outside the WTO case and there was no challenge to its funding by Airbus member states. Airbus is owned by EADS.

Although technically correct in excluding the A350, the EU is opening itself up to an immediate challenge from the United States, said a Geneva-based trade lawyer who is closely following the case, but not representing either side.

"Maybe this is the first move in trying to avoid the challenge of the big issue out there, which is the launch aid for the A350, which is a direct competitor to the Dreamliner which is what this whole case was about from the beginning, in my view," he said. "If I'm the US, I would say giving launch aid to the A350 seems to be inconsistent with what the WTO panel has told us."

‘Ancient history'

Richard Aboulafia, an aviation analyst at the Teal Group, agreed that the EU's compliance document would not satisfy the US side, which was always focused on disrupting the funding for the A350.

"There's one number you don't see through the entire document and it's what the whole thing is about, the A350. And so much of this document focuses on ancient history, the contrast is even greater," he said.

"The origin of this case was just when the (Boeing) 787 was getting going. In order to make the 787 look compelling, they decided to attack public funding for any kind of EU response."

Bargaining chips

Boeing officials declined to comment on the EU statement, saying they would refrain until the office of US Trade Representative Ron Kirk reacts. Kirk's office said on Thursday it would take some time to evaluate the EU's compliance, and it has not yet said if it is satisfied.

By refusing to yield on the A350 now, the EU could be saving up bargaining chips for a negotiated settlement later, which many trade experts say is likely to be the eventual outcome of the dispute. But that certainly will not come before a WTO decision in the case against US support for Boeing, which is expected in the spring of 2012.

Among the EU's pledges to end illegal subsidies, set out in almost impenetrable legal language, it said Airbus had repaid about $2.29 billion of state financing "other than on deliveries under previously existing contractual terms."

It was not clear if that referred to funding for the A350 or the A380 superjumbo.

A350 issue looming

Although the A350 is not included by name in the WTO ruling, US officials believe the weight of evidence against loans used in the past is so great that it would be virtually impossible to re-use the system without breaking the rules all over again.

Washington could request another WTO panel to arbitrate the EU's compliance, possibly leading to an EU appeal, a second compliance ruling, a second EU compliance offer and a further compliance panel requested by the United States and so on.

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