SUBSIDIES IN THE SKY

By Ray Fleming EUROPE and the United States have been quarrelling about the ways in which they each subsidise the development and manufacture of civilian aircraft for fifty years. On the whole it can be said that European governments, separately or jointly, provide low-cost loans in a fairly open way because they know that even the largest private aircraft manufacturer cannot finance the huge costs involved in research and development without assistance; the alternative would be to buy American planes all the time. The pattern of American government support is more complex and less easy to clarify; in the first place, military aircraft contracts provide a stable platform for the less certain civilian market, and in addition tax breaks at the national and state levels give assistance. Of late the dispute has narrowed down to the financial assistance given to the only two major aircraft manufacturers left in the world, the American Boeing company and the pan-European Airbus. Because of the considerable recent success of Airbus in the world market the American government has been pushed by Boeing to resolve the issue once and for all. Negotiations between the European Commission and Washington have been unsuccessful and yesterday it was reported that the issue has been referred to the World Trade Organisation which is likely to take at least 18 months to determine whether the subsidies provided distort fair trading. Boeing is certain that they do and points to the fact that it has had to cut production by almost two-thirds in the past five years; apparently the company does not accept that this may be due to the superior qualities of the Airbus planes. Both Brussels and Washington claim that they are still willing to deal bi-laterally and that “the lines are open”; however, no talks are taking place at the moment and it is likely that the dispute will escalate rather than diminish once the World Trade Organisation begins its work. The inquiry will be particularly difficult for one person; Pascal Lamy, who until last year was the EU's trade commissioner is shortly due to take up his new job as director general of the World Trade Organisation.