U.S. Readies Its Defense Of Aircraft-Subsidy Agreement
How much governments may subsidize commercial-airplane manufacturing may hold the key to Boeing winning Europe’s approval for its multibillion-dollar merger with McDonnell Douglas.
The answer to the question may come in two days of meetings between U.S. and European trade negotiators, which begin today in Washington, D.C. The meeting is a semiannual event required by the treaty.
At issue, U.S. negotiators believe, is Europe’s desire to change government-subsidy limits imposed by a 1992 U.S.-European trade treaty. The Europeans want the limits lifted to permit government subsidy of Airbus Industrie’s development of a superjumbo jet, to enable it to compete in the global airline market with Boeing’s dominant 747 jumbo jet.
European politicians and aerospace executives recently have been attacking the agreement on government subsidies, raising speculation among U.S. trade negotiators that the Europeans are seeking a way to exit the treaty.
Such a move would let the Europeans ignore the accord’s strict limits on direct aircraft subsidies and free them to pour taxpayer money into the development of the superjumbo jet, dubbed the A3XX.
But the move could trigger a trade war with the United States, and U.S. officials say they would consider the “full range” of direct trade sanctions with the European Union and enforcement measures through the World Trade Organization.
“No nation enters a trade agreement lightly, and there are consequences for withdrawing from an agreement,” said Jay Ziegler, spokesman for U.S. trade representative’s office, which is leading the six-person negotiating team. “We would hope the European Union carefully weighs its actions in this area.”
So far, the drama over the Boeing merger has been a series of diplomatic and political calculations by Boeing and Airbus that have roped in their respective governments.
Airbus, a four-partner European consortium, is an aggressive competitor responsible for the death of Lockheed and the near-death of McDonnell Douglas’ commercial-aircraft division. But its 30 percent market share and its $9 billion annual revenues pale next to Boeing and McDonnell Douglas’ combined market share of nearly 70 percent and revenues of $48 billion.
“The Europeans are playing a game of chicken or bluff, and hoping the other side will throw in a few more sweeteners,” said a Washington, D.C., aerospace lobbyist who spoke on the condition of anonymity. “It’s in Europe’s best interest to put as much heat on as they can.
“What they’ve got is negotiating skills and chutzpah, but they have limited market power. So you go with what you got. My 7-pound cat does great arching and hissing, preferably behind the screen door.”
Last week, a European advisory committee of antitrust experts advised the European Commission against approving the merger unless Boeing offers more concessions to ease European concerns that Boeing would dominate the commercial-aircraft market.
The commission - the executive arm of the 15-member European Union - will make its final decision on the merger July 23. The U.S. Federal Trade Commission approved the Boeing/McDonnell Douglas alliance last week without conditions.
The 1992 accord was the result of U.S. concerns of “unfair, excessive and exorbitant subsidies” during the development of Airbus’ airplanes in the 1980s, said Ziegler, of the U.S. Trade Representative’s Office.