This could be serious

The marathon dispute between the US and the EU over Airbus subsidies looks like ending up with the WTO.

The US demand by Bush last August that the EU stopped subsidising Airbus developments has so far been dead-batted with the ritual response of "we will if you will" – much the same line that the EU has taken with stopping farm subsidies.

But the US will no longer accept this stance, and is also rejecting another EU counter, that the US giant planemaker Boeing, is receiving “indirect subsidies” through benefiting from defence work. Today, therefore, in a final round of talks, the US will present EU negotiators with an ultimatum that, unless the 1992 accord on civil aircraft subsidies is renegotiated, the WTO disputes procedures will be invoked.

According to Boeing, Airbus Industries has now amassed 35 billion dollars in subsidies over the past 12 years, and it no longer willing to see its competitor benefit from such largesse, when it is set to launch the new Airbus A380 line of super-jumbos, in direct competition with its own 747 jumbos.

The CEO of Boeing, Harry Stonecipher, complains that the "launch aid" provided by European governments has enabled Airbus to develop a full family of aircraft without assuming the commercial risk for doing so, and is denying that his company is gaining any significant benefits from the US government, over and above tax-breaks for infrastructure, which all US companies can obtain.

Airbus, he says, receives 33 per cent of each new aircraft model's development costs up-front and none of the $15bn in launch aid Airbus has received from European governments has been repaid on commercial terms - in fact, much of it has not been repaid and may never be. Indeed, a great deal of it has been forgiven entirely. Thanks to this subsidised "borrowing", Airbus has avoided at least $35bn in debt.

Now Airbus is receiving about $3.7bn in launch aid for the A380, with funds flowing five years before the aircraft's first expected delivery. If it does not hit its projected sales total, Airbus may never have to repay the money.

If the dispute cannot be resolved, the US will be looking for permission to apply tit-for-tat sanctions against firms in EU member states. With the colossal amounts involved, extra tariffs imposed against exports to the US could be very high. And because our trade policy is subsumed within the EU trade policy, any sanctions imposed on the EU will apply to our exports, unrelated to the extent of our involvement in the dispute.

This could have very serious implications for British firms and for our economy in general if the result is a significant loss of trade with our Atlantic partner.