Washington and Brussels faced off on Tuesday at the World Trade Organisation (WTO) in a row over alleged illegal subsidies to big planemakers, the largest dispute ever to come before the global trade arbitrator.
A panel of trade judges began the first in a series of closed-door hearings on a US complaint that the EU has given billions of dollars of banned assistance through so-called launch aid to Airbus, the loss-making European concern.
The EU has brought similar accusations against what it sees as illegal state help for Boeing, Airbus's US rival. Hearings in that parallel case are due to begin in July.
"Boeing has from the start of this process sought an end to launch aid," a company spokesman said. "It continues to support US government efforts to achieve this objective." The row took off in late 2004 when the United States withdrew from a 1992 plane pact. The battle dwarfs a $4.0 billion transatlantic tussle over US tax breaks to exporters, until now the biggest dispute in the 12-year-history of the WTO.
Washington says launch aid is illegal and lets Airbus take decisions on whether to bring hugely expensive new planes to market without having to worry too much about failure.
If it wins, it says it will ask the WTO to order Airbus to repay $4.5 billion of launch aid still outstanding, mainly for the 555-seat A380, the world's largest passenger plane, which is running two years behind schedule.
"The damage we are concerned about is the commercial risk that we take, and the commercial risk that they don't take in the case of subsidies," Boeing Commercial Airplanes President Scott Carson said recently.
But the EU counters that launch aid, which has been used with 3 of 9 aircraft introduced since 1990, conforms to the 1992 pact and that Airbus has repaid billions of dollars to its four main state backers - France, Germany, Britain and Spain.
In turn, Brussels is challenging tax breaks from the state of Washington, home to the US planemaker, and other US measures that it says benefit Boeing exclusively. It will present the WTO with written arguments in the case against Boeing on Thursday.
When the United States initiated the case, Airbus had overtaken Boeing as the world's leading planemaker in terms of its order book. But Boeing reclaimed the number one spot in 2006, leading some industry analysts to speculate that it could lose interest in the case, particularly given the troubles facing the A380.
The European consortium has struggled with delivery problems with the giant double-decker plane. It has embarked on a controversial rescue plan that will cost 10,000 jobs. Both sides have long said that they remain open to negotiating a settlement to legal battles that some analysts have said both could end up losing.
China recently announced its own plans to enter the large civilian plane market, so both sides would be interested in defining aid rules more clearly, whether through litigation or negotiation. The initial WTO ruling in the case against Airbus is due in September, though diplomats say that it could be delayed. The other verdict in the tit-for-tat case will come next year.
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