EU wants to avoid trade war with US

The European Union wants to continue negotiations with the US to resolve a dispute over subsidies to aviation giants Boeing and Airbus despite the failure to strike a deal before tomorrow’s deadline.

“I stand ready to continue negotiation,” EU Trade Commissioner Peter Mandelson said in a statement today.

“The EU remains interested in reaching an initial agreement that reduces the levels of government support in this sector and completing a comprehensive agreement in the longer term,” Mandelson added.

EU officials said they were hopeful more talks could avoid either side taking legal action at the World Trade Organisation. They warned a lengthy case at the WTO risked prolonged trans-Atlantic political tensions and commercial uncertainly for both companies.

“It is of course open for both sides to take the matter to the WTO, but in our opinion, this is better avoided.” Simon Fraser, Mandelson’s head of cabinet, told reporters.

Acknowledging that a 90-day negotiation period failed to resolve the dispute, US officials said on Friday they would not take the case back to the WTO unless Europe launches new development subsidies for Airbus.

Fraser said the EU had no intention of initiating action at the WTO, but the EU has made clear it would launch a counter-case if Washington files a compliant over Airbus to the world trade watchdog.

Both sides have sought to tone down rhetoric over the case after Mandelson and US negotiator Robert Zoellick exchanged barbs last week.

However, officials in Brussels and Washington have made clear time is tight for a negotiated settlement since the expiry of the April 11 deadline ends a standstill agreed by both sides on fresh aid to the airline makers.

Airbus is expected within weeks to seek around €1.6bn in investment from European governments to support the launch of its new A350 model which is projected to enter service in 2010. Such aid would likely spark legal action by the US at the WTO unless an agreement is found.

EU officials say talks stalled on US insistence that the EU halt such “risk sharing” investment in new models under which Airbus does not have to repay government money if its plane is a commercial failure. The EU counters that Boeing receives similar aid, notably through €1.6bn granted by Japan to build the wings for Boeing’s new 787.

The US filed a complaint with the World Trade Organisation last October alleging that Airbus has received €15m in illegal aid. Later the same day, Brussels retaliated with its own WTO suit citing €23m in alleged Boeing subsidies.

Both sides agreed in January to suspend WTO hearings and pursue an amicable settlement by the April 11 deadline.

The EU claims government support to Airbus is outweighed by US backing to Boeing through tax breaks, investment subsides and support from NASA and the Pentagon.