The Bush administration said late today that negotiations with the European Union over subsidies to Boeing Co. and Airbus SAS were on the verge of breaking down, raising the likelihood that the two sides will fight out the matter in a high-stakes international trade case.
The rift emerged following a late-afternoon phone conversation between Peter Mandelson, the European trade commissioner, and Robert B. Zoellick, the recently departed U.S. trade representative who has continued to manage the issue from his new job as deputy secretary of state. In a statement, a U.S. spokesman blasted the E.U. for refusing to curb its subsidies to Airbus and threatened to revive America's suit at the World Trade Organization.
"Although on January 11 the E.U. agreed to a negotiating structure eliminating large civil aircraft subsidies, over the last two months they have been backtracking and seeking to change the terms of that agreement," said Richard Mills, a spokesman for the U.S. Trade Representative's office. "It's now demonstrated conclusively that they're not prepared to follow through on that agreement."
European officials professed astonishment at the U.S. interpretation of events.
"Peter Mandelson is completely surprised that such a statement should be given to the press. It doesn't correspond to what he took from the discussion with Bob Zoellick today," said Anthony Gooch, the E.U. spokesman in Washington, in response to queries from reporters. "There are clearly difficult issues at stake but he [Mandelson] doesn't recognize the portrayal of the state of play as offered by the U.S. side. If Mr. Zoellick is announcing that the negotiations are at an end, Mr. Mandelson has not been informed of this development."
Although the E.U. statement left open the possibility that the two sides might patch up their differences, the barbed language suggested that Washington and Brussels may have difficulty avoiding international litigation. Officials on both sides have acknowledged that a WTO decision could harm both Boeing and Airbus, by depriving both of government aid.
The confrontation has loomed for months as one of the biggest, and most potentially destructive, in the history of the Geneva-based WTO. In filings with the global trade body, the United States and Europe have accused each other of illegally providing government aid to their flagship airplane makers.
The two sides stepped back from the brink on Jan. 11 when they agreed to try to settle the matter with a pact that would eventually end subsidies for both companies. As part of that truce, they also agreed to a "standstill" on further subsidies. Although the truce was hailed at the time as an important step toward mending tattered transatlantic ties, it was clear that the two sides strongly disagreed over what constitutes a subsidy.
"The United States is willing to hold to the standstill terms of the January 11 agreement that precluded further subsidies, but if the EU either breaks or refuses to extend the terms, we will return to litigation," Mills said.