Allegations of unfair government support have been exchanged by the USA and Europe for decades despite several attempts to craft trade pacts that would ensure a level playing field. The latest spat involves implementation and interpretation of the EU/US bilateral agreement on trade in large civil aircraft (LCA) signed in 1992.

The USA first cried foul on European government support for Airbus in the late 1970s. The result was a 1979 plurilateral agreement on trade in civil aircraft which removed trade barriers but failed to limit subsidies. In 1989, the USA filed a complaint over German government exchange-rate guarantees for Airbus. This led to negotiation of the 1992 bilateral agreement on subsidy issues.

Then the two sides began criticising each other's implementation and interpretation of the LCA pact. In 1997, as it investigated the Boeing/McDonnell Douglas merger, the EU called for modification of the LCA agreement, but the USA refused.

It seemed like a good deal at the time, but the 1992 agreement on trade in large civil aircraft was flawed from the outset for two principal reasons: imprecise definition of indirect support; and lack of enforcement provisions.

The agreement limits direct support to 33% of development costs - 25% at an interest rate no lower the government's cost of borrowing and the remainder at a rate 1% higher. The loans must be repaid within 17 years.

Benefits from indirect support are defined as "identifiable reductions" in large civil aircraft development and production costs resulting from government-funded aeronautical research and defence, including military. The agreement limits these benefits to 4% of any company's annual commercial turnover.

There are no enforcement provisions in the agreement, which relies on transparency, with the parties required to exchange, regularly and systematically through twice-yearly meetings, all public information on direct and indirect government support. Unilateral withdrawal from the accord requires one year's notice.

Source: Flight International