US shunned over Airbus aid deadlock

EUROPEAN trade chief Peter Mandelson is refusing to step in to revive peace talks between the America and the European Union over disputed subsidies for Airbus and Boeing. The prospect of a massive legal battle between the two plane makers loomed after the collapse of peace talks two weeks ago.

The talks ended with an angry phone call between Mandelson and US trade commissioner Robert Zoellick. EU officials insist that the next move is with the Americans, and Mandelson is waiting for them to come back and explain their position.

But the Americans, while insisting they want to talk, are furious that the EU wants to discuss in detail how Boeing benefits from its suppliers receiving state aid.

The Europeans say they have no intention of giving up on state-subsidised loans until the Americans offer some concessions. If the two sides cannot reach agreement on what subsidies are acceptable, Boeing is expected to take legal action against Airbus before the World Trade Organisation, the body that settles global trade disputes.

This would immediately trigger a counter-suit by Airbus against Boeing and there are fears that a lawsuit involving two such giants could overwhelm the WTO.

In essence, the Americans say Airbus is cheating because it is getting illegal state aid, while the Europeans are accusing the Americans of receiving indirect aid through hidden subsidies.

Both sides have been conducting business in this way for 20 years, but in the past two years, Airbus has started to draw ahead of the Americans, who now want to stop Airbus applying for state aid for their new A350 plane, planned to compete with Boeing's new 787.

Since talks broke down with the Americans accusing Mandelson of hanging up on Zoellick - a claim denied by Mandelson - both sides have been sniping at each other.

US background briefing papers seen by Financial Mail show the depth of American animosity, dismissing Airbus claims as ' nonsense' and doubting the sincerity of the Europeans in wanting to end 'unfair' subsidies.