The Bush administration dramatically escalated a dispute with the European Union yesterday by filing one of the biggest complaints in World Trade Organization history, accusing European governments of illegally subsidizing Airbus SAS, the continent's airplane manufacturer and a global competitor of Boeing Co.
The move, denounced in scathing terms by European officials as an election-year ploy, prompted an immediate E.U. counterclaim to the WTO alleging that subsidies paid to Boeing also violate international trade rules.
Bringing dueling cases before the WTO raised the stakes in an increasingly acrimonious battle between the two flagship airplane makers. Airbus overtook Boeing in worldwide plane sales last year for the first time, sparking concern in the United States that the U.S. company was losing its long-dominant grip over an industry that generates enormous export receipts as well as tens of thousands of high-skill jobs.
Boeing blamed the shift in market fortunes on Airbus's generous use of funds from the governments of France, Germany, Britain and Spain -- subsidies that were allowed under a 1992 agreement between the United States and the E.U.
The two sides had been discussing a revision of that accord, but those talks broke down last week.
By seeking a ruling from the WTO, the Geneva-based arbiter of international trade disputes, Washington is risking the possibility that government support given by both sides might be judged illegal. That could threaten the duopoly that Boeing and Airbus maintain over the market for large commercial aircraft, which they estimate is worth about $2 trillion over the next 20 years, and give an opening to makers of smaller planes in Canada and Brazil.
The case also adds a substantial level of tension to the transatlantic trade relationship, which is already laden with spats over matters ranging from genetically-modified foods to hormone-fed beef and U.S. export subsidies.
U.S. officials contend they had no choice but to bring their case, which charges that Airbus has used $15 billion worth of subsidies to accelerate the development of aircraft. They asserted that the Europeans were refusing to make changes necessary in the 1992 agreement to reflect the huge transformation in the relative market clout of the two companies. The administration formally withdrew from the 1992 pact yesterday.
"This is about fair competition and a level playing field," U.S. Trade Representative Robert B. Zoellick said in a statement. "Since [Airbus's] creation 35 years ago, some Europeans have justified subsidies . . . as necessary to support an 'infant' industry. If that rationalization were ever valid, its time has long passed."
The action drew praise from Harry Stonecipher, Boeing's president, who since assuming the post of chief executive in December 2003 has pressed hard for an aggressive policy to prevent Airbus from getting further "launch aid" for new aircraft. "Boeing appreciates the U.S. government's leadership and its commitment to end the subsidies, particularly launch aid that Airbus receives," Stonecipher said, a sentiment echoed by some Democratic lawmakers, especially from Washington state where Boeing maintains some of its largest facilities.
But the E.U. fired back with a complaint that Boeing has received even greater subsidies -- $23 billion worth since 1992. Although much of that amount involved government defense contracts not directly related to commercial aircraft, it also included support to important Boeing suppliers from the Italian and Japanese governments as well as tax breaks granted by Washington state.
"If this is the path the U.S. has chosen, we accept the challenge," said Pascal Lamy, the European trade commissioner.
The E.U.'s spokesman in Washington, Anthony Gooch, was exceptionally blunt in questioning the administration's motives in bringing the case so close to the election. President Bush promised Boeing workers during the summer that he would fight to eliminate the Airbus subsidies with a WTO case if necessary, and his administration has come under attack from Democrats for failing to file as many cases at the trade body as the Clinton administration did.
"We think this is very much linked to the electoral calendar," Gooch said in a conference call with reporters. "I like to think I'm not cynical, but sometimes you have to be a realist when you're faced with things that are blatantly obvious."
Underscoring the political pressure on the White House to be tough on trade, Democratic presidential candidate Sen. John F. Kerry (Mass.) issued a statement reiterating his charge that "for the last four years George Bush has been asleep at the wheel when it comes to enforcing existing trade agreements." And Rep. Sander M. Levin (D-Mich.), the ranking Democrat on the House trade subcommittee, said, "Election-year conversions are not an adequate response to American businesses and workers harmed by inaction in the face of unfair trading practices."
Administration officials disputed assertions that their action was driven by politics. The reason for filing the complaint was "all this talk of a new tranche of [European] subsidies" for a new Airbus plane, said a senior U.S. trade official who briefed reporters on condition that he not be identified. Both companies are working on new aircraft designs that will be in direct competition with each other, and "once the subsidies are out and given, the horse is out of the barn," the trade official said.
Gooch scoffed at that explanation, noting that no specific proposals for new subsidies were in the works.
Washington state Democrats were enthusiastic nonetheless, and agreed with the administration that presidential politics was not the motive. "This is the bold action we need to protect our workers," said Sen. Patty Murray (D-Wash.). "I appreciate Ambassador Zoellick and President Bush's continued work with me to restore the competitive balance to commercial aircraft trade." Rep. Norman D. Dicks (D-Wash.) declared: "It is now precisely the time for the United States to act to halt these subsidies."
One strong possibility raised by U.S. officials is that the case could still end in a settlement to revise the 1992 agreement. WTO rules mandate a 60-day "consultation" period before a panel even begins hearing the dispute, and the two sides can strike a compromise at any time during the period the case is being considered, which can take more than a year. Indeed, the 1992 accord was the result of a U.S. victory against Airbus in the General Agreement on Tariffs and Trade, the predecessor organization to the WTO.
But the case could also get tangled up in other disputes, notably the export-subsidy case, where the E.U. is currently imposing duties of about 12 percent on a host of U.S. goods.
House and Senate negotiators yesterday reached agreement on a corporate tax bill repealing the subsidy that the WTO ruled illegal, but the bill phases out the break over two years. Gooch hinted -- without saying so directly -- that because of the WTO case the administration filed on aircraft, Brussels might exercise its WTO right to keep some duties in place.
"Boeing is one of the major beneficiaries" of the tax break, Gooch said pointedly.