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Last Updated: Thursday, 7 October, 2004, 11:32 GMT 12:32 UK
Q&A: Boeing and Airbus
Boeing plane
A fresh trade dispute has broken out between the US and the European Union, this time over the subsidies that the two sides pay to the aircraft industry.

The US claims that the financial support European governments provide to aircraft maker Airbus is in breach of world trade rules, while the EU says the same is true of Washington's subsidies for Boeing.

While transatlantic trade disputes are nothing new, this latest spat threatens to put all previous ones in the shade. BBC News Online takes a closer look.

How did this row start?

The US and the EU have been sniping away at each other for years on this issue, although outright hostilities have until now been held in check by a 1992 agreement between the two sides setting limits on aircraft subsidies.

Matters took a turn for the worse on Wednesday when the US tore up the 1992 agreement, and made a formal complaint to the World Trade Organisation over the EU's support for Airbus.

The EU, not to be outdone, responded by filing its own complaint over the financial assistance the US government provides to Boeing.

Each side claims that the other has breached the terms of the now-defunct deal on subsidies.

How much money are we talking about?

The US claims Airbus has received the equivalent of $40bn (22.4bn; 32bn euros) in subsidies since its inception in 1967, mostly in the form of government loans with advantageous repayment terms.

The EU says Boeing has pocketed some $18bn in direct and indirect subsidies since 1992, including a $3.2bn tax break from the authorities in Washington state, where the firm has assembly operations.

Why has the battle broken out at this particular time?

There are several factors that have brought matters to a head.

Airbus, after years of playing second fiddle to Boeing, has recently started to outpace its old rival.

The European company sold more passenger jets than Boeing for the first time ever last year.

The US says this demonstrates that the traditional justification for Airbus' subsidies - that it is a young company struggling to compete in a cut-throat industry - is no longer valid.

The EU retorts that Airbus' success reflects a steady decline at Boeing rather than regular injections of public money.

Secondly, Airbus and Boeing are both gearing up for the launch of new super sized passenger jets - Boeing's 7E7 "Dreamliner" and Airbus' A380 super jumbo - and their success is critical to both companies' future performance.

Each side claims that a large chunk of the other's subsidies has been channelled towards developing these new-generation aircraft.

Finally, there is the US presidential election, now less than a month away, to consider.

The EU has claimed that Washington's complaint to the WTO is a politically-motivated attempt to make President George W Bush look tough on trade ahead of the poll, although US officials have vehemently denied this.

What happens now?

Under WTO rules, the EU and the US now have 60 days to settle their differences amicably before formal dispute resolution procedures kick in.

However, the size and complexity of the case has raised questions over whether WTO is equipped to handle it.

Under normal circumstances, the winning side in a WTO dispute is entitled to impose trade sanctions on the loser unless it abandons the practices that gave rise to the dispute.

In the worst case scenario, the EU and the US would both win, paving the way for a ferocious round of two-way sanctions which could seriously dent transatlantic trade, harming the European and American economies.

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