No. 03/05
January 11, 2005

AIRBUS/BOEING BREAKING NEWS:
EU/US AGREEMENT ON TERMS FOR NEGOTIATION TO END SUBSIDIES FOR LARGE CIVIL AIRCRAFT

The European Union and the United States have agreed today on the terms for launching negotiations on subsidies affecting the civil aircraft sector. The objective of these negotiations, which will last three months, is to eliminate different types of subsidies and to establish fair market-based competition between Boeing and Airbus.

With this agreement the EU and US have confirmed their willingness to resolve the dispute [see also this] which has arisen between them over trade in large civil aircraft and to devote time and resources to doing so by negotiation rather than pursuing the dispute through WTO panels.

The negotiations are intended to cover the different types of support affecting the sector in a balanced manner, elaborating upon the scope of subisidies as defined by the WTO.

The EU and the US have also agreed to seek early extension of the agreement between them to third countries, notably those involved in significant risk-sharing production for either Airbus or Boeing.

Peter Mandelson said: "I am glad that Bob Zoellick and I have been able to agree a way forward. I hope our negotiations in the next three months will lead to an agreement ending subsidies to development and production of large civil aircraft. When disputes arise in transatlantic trade relations we should try to solve them by dialogue and co-operation. Today's agreement creates a positive atmosphere for more work to strengthen the economic partnership between the EU and the US, which is vital for both of us. Airbus can justifiably be proud of the excellent range of aircraft it is producing, and is clearly capable of competing in the global market place."

The text of today's agreement is attached. It marks the beginning of a process and not its conclusion. Much work remains to be done. The Commission intends to work closely with Member States and Airbus, as well as with the United States Trade Representative, to achieve a final result that enhances Europe's competitiveness in this important sector.

EU/US Agreement on Terms for Negotiation to End Subsidies for Large Civil Aircraft (LCA)

1. The objective is to secure a comprehensive agreement to end subsidies to large civil aircraft producers in a way that establishes fair market competition for all development and production of LCA in the European Union and the United States.

2. At present, the companies concerned in the EU are Airbus and its principal shareholders, and in the US, Boeing.

3. The agreement will be negotiated within three months.

4. (a) The agreement will be negotiated between and apply to the United States and the European Union.

(b) These parties will subsequently work together to broaden the agreement to include as parties other countries with civil aircraft industries, or countries with risk sharing roles relevant to the objective of the agreement.

5. (a) During the negotiations the parties will not request establishment of WTO panels relating to the pending disputes.

(b) During the negotiations, within the time frame foreseen in paragraph 3 above, the parties will make no new government support commitments for LCA development or production.

6. The Parties will use the definition of subsidies in the ASCM [WTO Agreement on Subsidies and Countervailing Measures]. The parties will agree an illustrative list of subsidies to be covered by the agreement which elaborates the ASCM definition. They will use this list to reach agreement on which form of subsidy should be prohibited, actionable or permitted.

7. The agreement will be enforced through transparency and strong dispute settlement procedures.

8. In negotiating the agreement the parties will establish agreed terms and conditions under which either may withdraw at a future date. On the one year anniversary of the agreement, the parties will review its operation, including whether progress on international participation in it is sufficient to prevent circumvention of its objectives and to justify its continuation.

Brussels, 11 January 2005

Background

- In terms of revenue, production and orders for aircraft, Airbus and Boeing have occupied similar positions in recent years. Both companies have been making major efforts to develop new aircraft models. In 2000, Airbus successfully launched the A380, a 555-seat aircraft, the roll-out of which will take place on 18 January 2005. In 2004, Boeing launched a new aircraft, the 787 "Dreamliner," a significant portion of which will be produced outside the US, and which will be launched in 2008. Airbus has also initiated work on an aircraft that will operate in the same market segment as the 787, the A350, which will be launched 18 months later.

- Government support to Boeing and Airbus, which are the only 2 major large civil aircraft producers in the world (commonly defined as producers making aircraft for 100 passengers or more) has been a bone of contention between the EU and US for a number of years. The EC and the US concluded in 1992 a bilateral Agreement on Trade in Large Civil Aircraft, which included disciplines and ceilings on the respective types and volumes of support granted by either side. The US abrogated the 1992 Agreement unilaterally on 6 October and launched the WTO dispute settlement process against alleged European subsidies to Airbus. The Commission launched its own WTO case against subsidies given to Boeing on the same day.

- Intensive consultations have taken place between Ambassador Zoellick and Commissioner Mandelson since the second half of November. These discussions have led to the agreement on the objectives and parameters of the negotiations which will now commence.

Questions and Answers

Have the parties foregone their rights to go to dispute settlement in the WTO/withdrawn the pending cases?

No. However, during the negotiations the parties have agreed not to request establishment of WTO panels relating to the pending disputes.

Why does the text refer to risk-sharing partners?

The aeronautics industry today is characterised by an increase of international risk-sharing arrangements. Large civil aircraft manufacturers share risks and revenues with industrial partners. These partners often benefit from government support. This should be reflected in a future agreement. Otherwise the agreement would leave open a significant loophole.

What kind of subsidies do the EU and US expect to cover?

This is a difficult issue, which will be at the heart of the negotiations themselves. The way we want to achieve progress on this issue is to establish a list of different kind of subsidies affecting either of the two companies and to then to reach agreement on which form of subsidy should be prohibited, actionable or permitted.

What about third countries?

Both parties recognise the ever-increasing degree of international workshare, as well as the intention of new players to enter the large civil aircraft market (aircraft in excess of 100 seats). This is the reason why the EU and the US will work together to broaden the agreement in a second stage to include as parties other countries with civil aircraft industries or countries with risk sharing roles relevant to the objective of the agreement.

Does the deal have implications for the launch of the A350?

No. The question of support to new aircraft programmes and of different kinds will of course come up during the negotiations. But nobody expects their outcome to affect the decision to launch the A350. It has also been agreed that during the negotiations, within the time frame currently foreseen for the negotiations, neither of the 2 parties will make new government support commitments for LCA development or production.

Why the short negotiation period?

The negotiations will have to cover difficult issues, but some headway has already made over the past months and it is in both parties' interest to solve this issue as soon as possible.

What happens if negotiations are not concluded in three months time?

Parties will have to decide whether or not to extend the period of negotiations and, if so, on what terms.

What have parties agreed regarding subsidies during the period of negotiations?

It has been agreed that neither side will commit new government support for the development or production of civil aircraft.