WTO subsidies inquiry

The World Trade Organisation (WTO) yesterday agreed to set up a formal investigation into the long-running trade dispute over subsidies to Europe's Airbus and Boeing of the US, in the biggest dispute to come before the world trade watchdog.

Washington and Brussels accuse each other of providing their respective aircraft manufacturers with billions of dollars in illegal state subsidies dating back more than three decades.

The filing of their tit-for-tat complaints to the WTO in October followed a US move to tear up a bilateral deal negotiated in 1992, which set limits on aircraft support.

Subsequent attempts to reach a new arrangement finally collapsed in May.

Recriminations continued yesterday as the twin dispute panels were established. US officials said they remained "ready and willing" to resume negotiations on a new agreement but insisted that the objective should be to end subsidies to Airbus, not simply to reduce them.

Brussels, which says it is being asked to eliminate its support to Airbus without any commitment on Washington's part to scrap aids to Boeing, complained that the US "was not prepared to move an inch".

The panels are not expected to deliver a definitive verdict until late 2006 at the earliest, assuming recourse to the appeals procedure. The US says Airbus - a consortium of European companies that is now the world's largest aircraft maker - has received $15 billion (€12.5 billion) in "launch aid" from France, Germany, the UK and Spain since its creation in 1970, and that this aid constitutes prohibited export subsidies under WTO rules.

The case against US subsidies to Boeing rests on the benefits the company has received from research and development contracts from the US Department of Defense and Nasa.

Brussels says these subsidies total $23 billion since 1992, to which must be added billions more in tax breaks and other aid extended to Boeing by local governments where its factories are located.

Many trade analysts believe the dispute will be settled outside the WTO, since the most likely legal outcome is a finding that both sides are in violation of international subsidy rules, laying them open to billions of dollars in trade retaliation.