EU appeals trade ruling condemning Airbus aid

[July 21, 2010]  GENEVA (AP) -- The European Union appealed on Wednesday a landmark trade ruling that found it gave planemaker Airbus a wide range of illegal subsidies in its battle with U.S. competitor Boeing Co., unfairly tilting a market worth more than $3 trillion over the next two decades.

The appeal covers nearly the entire case against European government support for Airbus, from the billions in low-interest government loans used to construct the A380 superjumbo to infrastructure provisions and research and development funding.

Despite the appeal, EU officials insisted that last month's 1,061-page decision by the World Trade Organization was "mixed." Legal experts, however, say Washington resoundingly won the first round as Brussels awaits a confidential verdict in September in a countersuit alleging illegal U.S. aid for Boeing.

The six-year-old dispute is moving with record slowness, and the EU appeal will again delay U.S. hopes of speedy compliance with WTO rules on loans and other payments to the France-based planemaker -- allowing European governments to first see the results of their complaint that Boeing receives millions in backdoor subsidies through NASA and U.S. Defense Department contracts.

The two rulings could set industry-defining guidelines, and ones that become even more important as new competitors from China and elsewhere emerge.

But Airbus' immediate concerns are that it can roll out well-tried funding strategies for the development of its mid-size, long-haul A350 XWB -- to compete against Boeing's 787 -- and that a conclusive judgment on illegal aid doesn't add a political hurdle to the company's battle over a $35-billion U.S. air force contract for refueling jets.

The WTO's ruling shows that Brussels recognized that Airbus has benefited from subsidies, but argued that the amount was negligible. The panel rejected this claim and said the EU's calculations "vastly underestimate" the subsidies. The WTO's own conclusion for the value of Airbus' unfair advantage was censored on the grounds that it would reveal confidential business information.

Demonstrating that the subsidies actually harmed Boeing was a key requirement for the U.S., which brought the case to the WTO in 2004 after pulling out of a 12-year-old agreement with the EU that regulated subsidies in the civil aviation industry between the two commercial superpowers.

The EU initially claimed a success on this front, noting last month that U.S. arguments of "material injury" for Boeing were rejected.

But White & Case lawyer Brendan McGivern said that finding has only "limited" legal significance because the WTO acknowledged that the U.S. suffered "adverse affects," or lost sales, as European subsidies enabled Airbus to capture market share from Boeing among airliners in Europe and elsewhere.

Airbus used billions of euros in low-interest government loans -- commonly called "launch aid"- to develop the A380 superjumbo and other planes. Boeing wants its rival to give the money back until repayments reach what they might have been if the lending took place at market rates.

But EU trade chief Karel De Gucht says the WTO has made "legal misinterpretations" in finding that EU loans were illegal, either for being contingent on exports or unfairly harming Boeing.

The WTO's appellate body is supposed to rule within three months, but the plane dispute is the costliest and most complicated in the trade organization's 15-year history. Any ruling would be unlikely before next year, and the United States still has time to challenge findings it disagrees with.

Most trade analysts expect the rivaling cases to eventually be solved through negotiations, even if the WTO can authorize retaliatory sanctions against countries that refused to play by the rules. That would still take years of litigation.

[Associated Press; By BRADLEY S. KLAPPER]

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