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Last Updated: Wednesday, 1 June, 2005, 09:16 GMT 10:16 UK
Who will win the US-EU trade war?
Stephen Evans
By Stephen Evans
BBC North America business correspondent

A prototype of a giant Airbus A380 is towed to a testing area near the French city of Toulouse.
The US says the Airbus A380 has been unfairly subsidised

Who's going to win the dispute between Brussels and Washington over Boeing and Airbus?

The most likely answer is: neither.

The World Trade Organisation (WTO) will take about fifteen months to look at what are two separate complaints.

At the end of it, the best bet is that it will point the finger at both governments.

The WTO's panels of lawyers and economists don't have to adjudicate between Europe and the United States as though they were involved in a wrestling match with one winner.

Rather, there are two separate cases, with two possible losers or winners.

Two cases

The WTO will analyse the merit of the European Commission's allegations that Boeing gets unfair support in the form of generous help by the authorities in Washington State where it makes its planes, further Japanese subsidies from Boeing's Japanese suppliers and favourable treatment from the Pentagon.

And it will determine the merits of the American allegation that European taxpayers' support of Airbus projects is an out-and-out unfair state subsidy.

If the WTO does decide against both governments, they will each be told to stop breaking the rules.

And if they fail to desist, then retaliatory sanctions will be allowed in line with a scale set by the WTO.

Launch aid

There's a lot to be said for both sides' cases.

Airbus gets what's called "repayable launch aid" from European tax-payers.

It can develop new aircraft knowing that if they don't sell, the money won't have to be paid back. In the case of the giant A380, this amounts to $3.7bn (2bn; 3bn euros).

Boeing's 787 Dreamliner
Boeing hopes to counter Airbus with its mid-sized 787 Dreamliner
As for Boeing, Airbus alleges that the firm's generous contracts from the American military amount to a subsidy.

On top of that, the new Boeing 787 is being built with parts made in Japan by a consortium of Mitsubishi, Kawasaki and Fuji which too is getting "soft loans" from its government.

Boeing out-sold

Boeing has most to lose at the moment.

It's now being out-sold by Airbus, but it's putting its money on a new mid-sized 250-seat jet: the 787, better-known as the Dreamliner.

Airbus is putting a spoke in the wheel by pressing ahead with a mid-sized aircraft of its own, the A350.

So Boeing faces losing out at the big end of the market to Airbus' giant A380, while also having its chosen niche in the middle of the market spoilt by the A350.

If either government is found to be in breach of WTO rules when this dispute has wound through the process, the other will be authorised to retaliate.

The US could put tariffs on European goods if the WTO rules against Airbus and vice versa. So if both lose, both could retaliate.

Trade war

These tariffs could go far beyond the aircraft industry.

When the US was ruled to have unfairly supported its steel industry, for example, tariffs were slapped by the EU on Florida oranges to make a political point in a politically important state.

Nobody wins in a trade war.

We have been here before, though.

Just over a decade ago, the Canadian plane maker, Bombardier, and its Brazilian rival, Embraer, were involved in a similar dispute.

The WTO ruled against both governments, but neither Brazil nor Canada put tariffs on the other's goods.

It was business as usual.

With so many jobs at stake with Boeing and Airbus, it could be hard for either government to back down.

Flare-up in EU-US air trade row
31 May 05 |  Business

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