EU claims victory in WTO case versus Boeing

GENEVA/PARIS (Reuters) - The European Union said on Wednesday it had won a victory against U.S. subsidies for BOEING (BA.NY)that it hoped would set the stage for a negotiated settlement that would allow European governments to continue to help Airbus develop new aircraft.

"This was a very thorough analysis which in fact supports our view in this dispute," EU Trade Commissioner Karel De Gucht told Reuters during a visit to Argentina.

"I hope that everybody will be convinced that the right way out of this is to have negotiations," De Gucht said after a World Trade Organization panel issued its confidential report.

"The only way out of this dispute is in fact by finding a negotiated settlement," he said.

Boeing said that if reports about the decision were accurate, "then the ruling amounts to a massive rejection of the EU case and confirms that European launch aid to Airbus stands as the single largest and most flagrant illegal subsidy in the aerospace industry."

The ruling follows WTO condemnation in June of illegal European subsidies for Boeing rival Airbus, mostly in the form of European government "launch aid" loans. It is the biggest bilateral trade dispute ever before the WTO.

Two U.S. sources familiar with the case acknowledged the panel found Boeing had benefited from federal and other subsidies, but to a much lower extent than its European adversaries suggest.

They said the WTO had found subsidies worth about $5 billion, including $2 billion that already has been subject to an earlier settlement.

The $3 billion or so in new subsidies were mainly linked to payments provided to the planemaker by the American aerospace agency NASA, the U.S. sources said.

But a European source said the EU prevailed in most of the $24 billion of claims it had brought over allegations of unfair federal, state and local aid to Boeing.

A second European source, this one a government official, said whether the report found $5 billion or even $15 billion in subsidies was not the important issue.

"Our reading is that this is an absolutely seminal victory for Europe in the sense that Boeing has claimed for many years they were a stock-listed company operating according to market rules and they didn't violate the WTO, the official said.

"I think this report puts that straight by saying in equal measure that U.S. subsidies to Boeing have damaged Airbus as certain EU subsidies to Airbus have damaged Boeing," he said.

The report, issued only to EU and U.S. officials, will not be made public until possibly mid-2011. Boeing's share price closed a bit lower on Wednesday at $62.73.

NO COMPARISON, BOEING AND SUPPORTERS SAY

Boeing argued that any aid for which Washington was faulted paled in comparison with subsidies for Airbus that were denounced by the WTO in a ruling in a parallel case.

"Nothing in today's public reports on the European case against the U.S. even begins to compare to the $20 billion in illegal subsidies that the WTO found last June that Airbus/EADS has received," the company said.

The company's champions in Congress -- including Washington state Senator Patty Murray and Kansas Senator Sam Brownback -- said what they had been told about the ruling supported Boeing's statement.

"The two decisions are not in the same ballpark or even the same league. Anyone who says they are isn't telling the real story," Murray said.

But Alabama Senator Richard Shelby said the panel report meant Boeing and its allies "can no longer rationally claim" that only Airbus receives government support. "In fact, it is quite the contrary," he said.

The divergent views reflect a hot competition between Boeing and Airbus to build a fleet of U.S. Air Force refueling tankers. If Airbus wins, it plans to assemble the planes in Mobile, Alabama.

U.S. trade officials insisted they have long been prepared to sit down with the EU to negotiate a deal.

"We were interested six years ago. We were interested four years ago. We were interested two years ago. And we're still interested," said Nefeterius McPherson, a spokeswoman for the U.S. Trade Representative's office.

TRADE RULES SAID BROKEN

One European source said the WTO judges had backed EU complaints over some $17 billion in research contracts from NASA and the Pentagon, and $4 billion in tax breaks from Washington state.

The WTO judges found these payments broke WTO rules and should be withdrawn, the European source said. The figures were not cited in the report but were derived from adding the respective claims, the source added.

The dollar value of a particular subsidy can overstate the amount of damage its causes.

That said, "research and technical grants that are specific to an airplane or a company are always going to be subsidies because at the end of the day you cannot buy that investment in the commercial marketplace," said one European source familiar with the report.

The WTO dispute panel did not find that aid challenged by the EU was prohibited -- as it did in a ruling in the parallel case against Airbus subsidies brought by the United States.

If the aid had been ruled prohibited, it would have required faster action by Washington to fix it, the source said.

President Barack Obama will attend the EU-US summit in Lisbon on November 20, providing an opportunity for the two sides to discuss the dispute.

(Additional reporting by Laura MacInnis in Geneva, Doug Palmer in Washington, Juliane von Reppert-Bismarck in Brussels and Eduardo Garcia in Buenos Aires; Editing by Matthew Jones and Xavier Briand)

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