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Airbus-Boeing legal dispute may not reach settlement for another 2 years

Boeing Co. and Airbus may be unable to reach a settlement on government support for another two years, or even longer.

Peter Mandelson told the European Parliament in Strasbourg, France, that several "good faith attempts" have failed to resolve the trans-Atlantic impasse over alleged plane subsidies, which are being investigated by two World Trade Organization legal panels and tested relations between the two commercial giants.

"The U.S. has denied there are any subsidies provided to Boeing, while at the same time demanding as a precondition that the EU put an end to European support to Airbus," Mandelson said. "You will appreciate that on this basis it has not been possible to establish a fair and balanced basis for a negotiated settlement."

The dispute, expected to be the most complicated and costly in the WTO's 12-year-history, rests on the ability of Washington and Brussels to show that the alleged subsidies have harmed their industries. Both have presented evidence of lost plane sales or lowered prices to back up their claims.

Globally, the market for planes is worth an estimated US$3 trillion over the next two decades.

The office of the U.S. Trade Representative said it was still hoping for a negotiated settlement that eliminates all WTO-inconsistent subsidies.

"Meanwhile, we remain confident in a favorable outcome through litigation," spokeswoman Gretchen Hamel said.

Mandelson said the differences between the two sides have been too big to resolve and that he was "skeptical whether this dispute can be resolved at the negotiating table any time soon."

The U.S. accuses Airbus of taking advantage of decades of European subsidies worth the equivalent of up to US$205 billion to capture long-standing Boeing customers and become the world's largest seller of planes.

The EU, meanwhile, refers to tax breaks, development funding and outright grants to Boeing as examples of wrongdoing by the U.S. government and the states of Illinois, Kansas and Washington. It also accuses the U.S. of providing vast amounts of hidden support to Chicago-based Boeing through military contracts, citing a total subsidy figure through 2024 of US$23.6 billion.

An interim ruling in Washington's WTO case against Brussels was scheduled for October, but has been delayed probably until early 2008 because of the complexity of the dispute. A decision on the EU's complaint is not expected until the middle of next year. Both would be subject to appeals.

"We will continue to defend in the WTO European support for Airbus which has resulted in innovation, increased safety and efficiencies in air transportation," Mandelson said. While the 27-nation EU has always supported a negotiated solution, Mandelson said that WTO appeals processes could drag on until 2009.

"Once the WTO will have decided in the two cases, it would make sense to sit together with the U.S. to manage the resulting implications," he said. "Whether this might expand into proper negotiations, we are not sure."

The WTO decision could have far-reaching ramifications for Airbus, which still must decide how it will fund its midsize, long-range A350 XWB. The plane aims to rival the Boeing 787 Dreamliner but has already been subject to a costly redesign.

The France-based plane maker delivered the most planes last year, but fell behind Boeing on orders for the first time in six years - a turnaround that EU officials have pounced on to demonstrate that European support programs have not been unfair.

"Judge for yourselves: Boeing just announced that its new B-787 Dreamliner is the most successful plane ever launched in history," Mandelson said. "The most successful aircraft it may be, the most subsidized it certainly is."

Mandelson, a former Labour Party politician and close ally of former British Prime Minister Tony Blair, ended his speech on a more optimistic note, telling lawmakers that the EU and U.S. have avoiding letting their WTO battles damage the larger trans-Atlantic partnership.

"We intend to keep it that way," he said, "and we trust the U.S. will do the same."

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