Exclusive-U.S., EU deal on aircraft subsidies should include China clause -USTR

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© Reuters. Senate Finance Committee hearing on U.S. trade on Capitol Hill in Washington © Reuters. Senate Finance Committee hearing on U.S. trade on Capitol Hill in Washington

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) – The United States and Europe should agree to cooperate in opposing any future “hurtful” subsidies used by China to build up its commercial aircraft industry, U.S. Trade Representative Robert Lighthizer told Reuters in an interview.

Lighthizer said he was working to settle a 16-year-old dispute between Washington and Brussels over past government aid to aircraft manufacturers, but expressed frustration that current World Trade Organization rules would not prevent future subsidies by the European Union or China.

“If this plays out, they can start a new subsidy tomorrow, and drag out that litigation for five or six years, and there’s nothing under the WTO that you can do about it at all,” Lighthizer said in a rare interview late on Tuesday.

He said he had made several proposals to settle the matter before the Trump administration leaves office on Jan. 20.

“In every proposal I’ve made, I’ve said we have to have a clause that says, that whatever we agree to, if China starts to do massive subsidies in this area and it’s hurtful, we have to be able to work together to solve that problem,” he said.

The comments address what many trade experts have long regarded as the end game of the 16-year trade dispute – a transatlantic deal that the two sides could use to curb future subsidies by China in its fast-growing aerospace industry.

The WTO has ruled against every past use of government loans to develop new airplanes, but has not outlawed future subsidies.

U.S. and European negotiators have been engaged in intensive talks about ending the dispute over government aid to Europe’s Airbus, which is politically backed by Britain, France, Germany and Spain, and U.S. aid to planemaker Boeing (NYSE:).

Emily Haber, Germany’s ambassador to the United States, on Wednesday urged quick action to resolve the dispute, calling it a distraction from bigger issues that require joint action such as climate change and the pandemic.

She said a solution was urgently needed given the harmful impact of the coronavirus pandemic on aircraft manufacturers in both regions and moves by China to develop rival models.

European diplomats said the sides remained at odds, but expected to eventually reach an agreement with Lighthizer or possibly his successor.

The U.S. side has insisted on repayment of damages, a proposal rejected by EU negotiators, according to sources familiar with the matter. Reflecting U.S. concerns about the WTO, Washington is also seeking a bilateral dispute settlement mechanism that could be modeled on the system adopted in its U.S.-Mexico-Canada trade agreement, said one of the sources.

Both sides have imposed tariffs against each other’s aircraft and a range of food and liquor products after receiving a green light from the WTO, which found both engaged in illegal subsidies in the past. The EU in November said it would impose tariffs on $ 4 billion of U.S. goods, while U.S. tariffs on $ 7.5 billion of EU products have been in place since 2019.

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