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Watch the trailer at: http://www.foxsearchlight.com/sideways/index_nyt.html \----------------------------------------------------------/ On Subsidies, the Sky Wasn't the Limit January 12, 2005 By ELIZABETH BECKER and PAUL MELLER WASHINGTON, Jan. 11 - The United States and Europe backed away on Tuesday from suing each other over subsidies worth billions of dollars that each accuses the other of giving to its biggest civilian aircraft maker. The Bush administration and the European Union were poised to file formal complaints against each other at the World Trade Organization over support given to Boeing and Airbus. Such a case would have been the biggest ever heard by the group's dispute-settlement arm. Instead, with the profitability of an important industry at stake, they agreed to try to negotiate a new agreement over the next three months. The deal was completed in a three-hour trans-Atlantic phone conference on Monday between the top trade negotiators of the sides, ahead of a Thursday deadline for filing the complaints. The aim of the negotiations will be to end government subsidies to the aircraft industries and agree to "fair market competition" for the development and production of large civilian aircraft in the European Union and the United States, the agreement said. "There is much work to be done if we are to be successful in negotiating an ultimate agreement, but today does mark an important step in trying to end subsidies for large commercial aircraft," said Robert B. Zoellick, the United States trade representative. Peter Mandelson, the top trade commissioner for the European Union, said at a news conference in Brussels that the agreement would "strengthen the economic partnership between the E.U. and the U.S., which is vital to both of us." The agreement was also timely. President Bush will visit Europe next month as part of his campaign to reach out to his European allies, and a trade dispute would have been unwelcome. "This improves the atmosphere," said Ambassador John Bruton, the head of the European Union's delegation to the United States. "There was a risk that if this had gone ahead, both the U.S. and the E.U. would have had egg on their faces." The United States filed the initial suit against Europe at the W.T.O. last October after Mr. Bush promised to protect the United States aircraft industry from what he called unfair competition from Airbus. The administration was worried that if the talks drifted without resolution, Airbus would be able to develop a plane and receive loans worth billions of dollars that would be protected under a new agreement. The United States wants European countries to end direct loans to Airbus, which it says has been the beneficiary of as much as $40 billion in government aid through low-interest loans called launch loans. In their counterclaim, European trade officials said that the United States paid Boeing "massive illegal subsidies that damage Airbus," like tax benefits and subsidized research and development. The Europeans filed a countersuit with the W.T.O. on the same day that the administration filed its suit. The dispute stems from a 1992 agreement that outlined how governments could support their airline industries. Talks to review that agreement broke down this year over how to define government subsidies and whether the goal was complete elimination of those subsidies. Since the original agreement, Airbus has surpassed Boeing as the world's leading supplier of commercial aircraft and the two companies are now poised to compete over a new generation of aircraft. Boeing, the nation's largest civil aircraft exporter, expressed relief about the new arrangement. Harry C. Stonecipher, chief executive of Boeing, said in a statement that he hoped that the two sides would reach an agreement to end subsidies and "establish much-needed balance in the commercial aircraft market." The chief executives of the European Aeronautic Defense and Space Company, or EADS, Airbus's parent, and BAE Systems, which has a 20 percent stake, said in a statement that they welcomed the deal. "Today's decision is a very positive step forward, but much work remains to be done in order to ensure a level playing field," the statement said. The agreement that was announced on Tuesday gives the two sides three months to reach an agreement to end subsidies to large producers of civilian aircraft. During this period, the two trading partners agreed to refrain from pursuing the case at the W.T.O. or providing new subsidies. The agreement to back off from litigation was good news for the world's airlines, which are already reeling from price wars and not looking forward to paying higher prices for equipment as the case winds its way through the W.T.O. It also made sense for the companies themselves. "This case should never have gone this far since both sides receive government subsidies but differently," said John Newhouse, who is writing a sequel to his book on the airline industry, "The Sporty Game" ( Alfred A. Knopf, 1982). "It's not in their interests at all to carry the dispute to where it would languish for years and eventually lead to the loss of all their government support." Still, even on Tuesday, differences remained. Administration officials said that they were pleased that Europe had finally agreed that elimination of all subsidies was the ultimate goal. But Mr. Bruton of the European Union said that while this was the goal, subsidies might be allowed in the final agreement so long as they were fair and open. Scrapping all subsidies could also make it easier for new competitors to enter the market. The Canadian aircraft maker Bombardier, for example, is lobbying the Canadian government to help finance the development of a new range of large civilian aircraft to compete with those made by Boeing and Airbus. The deal reached on Tuesday does not affect current aid programs for Boeing, based in Chicago, or Airbus, which is based in Toulouse, France. Billions of euros lent for the development and debut of Airbus's A380 555-seat super jumbo will not be renegotiated. But the temporary aid suspension rules out any loans or subsidies for new projects like the 7E7 Dreamliner from Boeing, as well as the A350 that Airbus may build to challenge it. The 7E7 and the A350 are long-distance aircraft designed to fly to large and midsize airports; the A380 is intended to replace Boeing's 747 and will fly only to big airports. Both sides said that they hoped the talks would lead to a new agreement, but that if it did not, the case could still be brought before the W.T.O. Elizabeth Becker reported from Washington for this article and Paul Meller from Brussels. http://www.nytimes.com/2005/01/12/business/worldbusiness/12air.html?ex=1106541385&ei=1&en=2b0c655c24622747 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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