EU Criticizes U.S. Defense Of Boeing Subsidies

European Union labels United States' defense of billions paid to Boeing in subsidies as 'weak;' U.S. counters EU gave Airbus $205 billion.

GENEVA (AP) - The United States submitted a weak defense of the billions of dollars it pays in subsidies to Boeing Co., the European Union said Tuesday as the two sides began World Trade Organization hearings over their rival claims of illegal financing for airplane makers.
Brussels also rejected as ''absurd'' a US$205 billion (euro148.3 billion) evaluation by Washington of the benefit France-based Airbus has received as a result of European government support. The U.S. accuses the company of receiving billions in so-called launch aid from the bloc and its member states, which would have amounted to much higher costs if the loans were given at commercial rates.
''This 'estimate' is completely unrealistic,'' the 27-nation EU said in a statement, adding that the US$205 billion figure is more than 12 times the total net assets of Airbus' parent company European Aeronautic Defence & Space Co. NV.
''If the U.S. methodology were to be applied to the massive federal, state and local subsidies benefiting Boeing, the amount challenged by the EU would be not US$23 billion (euro16.6 billion), but rather US$305 billion (euro220.7 billion),'' the EU said.
The trans-Atlantic dispute, expected to be the most complicated and costly in the Geneva-based WTO's 12-year-history, depends on the ability of Washington and Brussels to show that the alleged subsidies have caused their industries harm. Both have presented evidence of lost plane sales or lowered prices to back up their claims.
The EU cites tax breaks, development funding and outright grants to Boeing as examples of wrongdoing by the U.S. and certain American states. It accuses Washington of providing vast amounts of hidden support to Boeing through military contracts.
''For NASA (research and development) programs in particular, these are sham transactions whose objective is solely to support the U.S. aeronautics sector/Boeing in very specific areas of research, with the resulting R&D being applied to Boeing aircraft models,'' the EU said.
It criticized a July 6 submission by Washington to the WTO investigative panel examining the EU's claims, for failing to address a number of the illegal subsidies paid to Chicago-based Boeing.
While the U.S. acknowledges in the submission that Boeing received US$2.2 billion (euro1.6 billion) in export tax breaks under the now-repealed ''foreign sales corporation'' measure it ignores how a transitionary period would allow the company to continue benefiting in breach of WTO rules, the EU said.
It also rejected U.S. attempts to escape questions about its payments by invoking national secrecy or by arguing that U.S. government procurement rules are so strong they would prevent any defense or public research funding from being used for civil aircraft.
The U.S. declined to immediately comment. It has refused to make public its WTO submission, saying it still needs to remove any confidential business information it may include.
Boeing said it is the EU which now admits having massively supported Airbus.
''The debate used to be whether launch aid is a subsidy,'' Boeing spokesman Chuck Cadena said. ''Now we're far beyond that because it appears the (EU) isn't contesting that it's a subsidy, only the extent to which it's subsidizing.''
The dispute began three years ago when Washington pulled out of a 1992 agreement with Brussels on plane subsidies. The WTO is due to issue its first report in the U.S. case against Airbus in December, and the EU case against Boeing in June 2008.
Both dates may slip due to the complexity of the cases. It appears, however, that no compromise is in sight.
''I think we have to assume at this stage that the WTO will adjudicate this dispute,'' said Peter Power, spokesman for EU Trade Commissioner Peter Mandelson. ''We have not received any signal from our American friends that they would prefer a negotiated outcome.''
Airbus delivered the most planes last year, but fell behind Boeing on orders for the first time in six years and has suffered from a series of production setbacks and leadership crises. Airbus still has to work out how it will fund the development of its midsize, long-range A350 XWB, which is meant to meant to challenge Boeing's 787 Dreamliner but has already undergone a costly redesign.
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