WTO says EU failed to comply with Airbus subsidy ruling

September 22, 2016 12:11 PM EDT

An Airbus logo is pictured on the company booth during the European Business Aviation Convention & Exhibition (EBACE) at Cointrin airport in Geneva, Switzerland, May 24, 2016. REUTERS/Denis Balibouse


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By Tom Miles and Tim Hepher

GENEVA/PARIS (Reuters) - The World Trade Organization said on Thursday the European Union had failed to rein in billions of dollars in subsidies to planemaker Airbus (NYSE: AIR), ratcheting up tensions in the battle for airliner orders worth trillions of dollars a decade.

The ruling is part of a series of tit-for-tat transatlantic complaints about aircraft subsidies that together make up the world's largest trade dispute, still raging after 12 years of bitter arguments over support for Airbus and its rival Boeing.

The WTO said the EU and four nations - Britain, France, Germany and Spain - had failed to comply with earlier rulings against all but two of 36 contested measures, including billions of dollars of European government loans to Airbus.

The loans were a "genuine and substantial" cause of significant lost sales for Airbus's U.S. competitor Boeing, it said.

In a blow to Europe's long-held belief that its newest and costliest jetliner, the A350, fell outside the case, the WTO for the first time said it had been subsidized but rejected U.S. claims it fell into the most toxic category of "prohibited" aid.

It adopted the same pattern for the A380, the world's largest jetliner, which has always been at the heart of a case that already runs to thousands of pages in rulings and appeals.

U.S. officials said Airbus had failed to undo subsidies worth $22 billion, including $4 billion for the A350, on which Airbus's prospects in the wide-body jet market largely depend.

European industry officials dispute those numbers, saying they overstate the amount of support at stake within the loans.

U.S. Trade Representative Michael Froman said the subsidies had cost the United States exports worth tens of billions of dollars and urged Europe to end subsidized financing "immediately".

The EU, however, suggested it would appeal the latest findings, saying it found some of the report "unsatisfactory".

The European Commission said the 574-page document should be read in the context of two other WTO reports expected to address U.S. subsidies to Boeing (NYSE: BA) in coming months.

It comes amid a U.S. presidential campaign where claims that U.S. companies are suffering from alleged cheating by foreign competitors is a prime topic for both candidates, and amid growing support for protectionism on both sides of the Atlantic.

In earlier findings, the WTO ruled that both Airbus and Boeing received illegal subsidies worth billions of dollars.

Both sides have sought WTO permission to draw up sanctions that could penalize other industries, with the U.S. calling for up to $10 billion in counter-measures and the EU $12 billion.

But no reprisals are expected until the WTO process, which is already running about three years behind schedule, has been exhausted, which trade sources say could take months or years.

Many analysts expect a negotiated settlement instead.

PING-PONG

Officials in both camps said they were ready to negotiate, but robust comments from both planemakers and upcoming elections in the United States as well as France and Germany - the main home to Airbus - suggested little immediate room for maneuver.

In a game of ping-pong that could determine how other jet manufacturers are regulated, Boeing dismissed as "happy talk" a statement from Airbus claiming near-victory and suggesting only minor tweaks in its funding system, while an Airbus spokesman said Boeing was "in denial" about subsidies for its own jets.

The public clash came as both sides digest unpublished new WTO findings in a third pillar to the dispute, brought by the EU over Washington tax breaks to Boeing, at least part of which Airbus says it expects to fall into the 'prohibited' bucket.

Boeing sought to dispel the notion that the three cases are interconnected and resolution of one depends on the other: an important point for it to win if retaliation is to begin any time soon.

"We're confident that the United States will pursue those remedies necessary," said Ted Austell, Boeing's vice president of regulatory affairs.

Airbus strategy appeared to be to hold out for a more favorable ruling on Boeing aid early next year.

"Boeing might later be hit by a rock when the next WTO ruling comes," Chief Executive Tom Enders said on Twitter.

(Additional reporting by David Lawder and Alwyn Scott; Writing by Tim Hepher; Editing by Mark Potter and Susan Fenton)



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