USTR - Briefing by USTR General Counsel John Veroneau on today’s meeting between the U.S. and the EU on the elimination of subsidies in the production of large commercial aircraft
Office of the United States Trade Representative

 

Briefing by USTR General Counsel John Veroneau on today’s meeting between the U.S. and the EU on the elimination of subsidies in the production of large commercial aircraft
09/16/2004


VERONEAU:  Let me just read a very brief statement and then I’ll just take some questions. Given the market parity between Boeing and Airbus, the U.S. believes that now is the time to bring an end to any new subsidies for the development or production of large commercial aircraft. We had a useful and frank discussion. We explained to the European Commission officials why we believe now is the time to end subsidies and asked them to join us in moving quickly toward that goal. 

MODERATOR: Okay, first question from the European side. Go ahead.

REPORTER:  Scott Miller from the Wall Street Journal. It looks like, having come from the EU briefing that there will be further conversations over the next few weeks on objectives and (unintelligible). Is there an end game to this? Are we supposed to have a resolution by a certain date so that (unintelligible) dragging around. For how long? At what point does the US run out of patience? 

VERONEAU: It’s not my position to fix a particular time frame. We explained to the Commission today and have in the past that there is a time element to this and that is why in the statement I read that moving quickly toward that goal.

REPORTER: So there’s no…it’s got to be done by the 1st of the year?

VERONEAU: I am not here today to lay out a definite timetable that’s for my boss and others to opine on.

REPORTER: Mr Veroneau, this is Jutta Hennig from Inside US Trade. Is there an agreement on what the core principals should be of a new agreement, or is that the purpose of the further consultations you expect to hold and when would those be taking place?

VERONEAU: Two things. One is to clarify, I mean we will continue this conversation but there is no, we did not lay out a specific timetable for consultations. We’ll be, so I don’t want to misrepresent sort of and give the impression that there is a schedule of next meeting in the way there was last time. Really, my job today is to report back to Ambassador Zoellick to give him an assessment of the meeting and then he will decide what the appropriate next steps are. So, to answer specifically your question, I mean there was some discussion about what elements of an agreement might look like but the Commission has not, at this point, accepted our goal of ending subsidies at this point in time. So obviously the first question before the Commission is whether to, whether that is a goal that they agree to, and then we obviously negotiate how best to achieve that goal.

REPORTER: And would you expect them to make that decision in the near future or would that be part of the future consultations on whether they would want to accept the U.S. goal of ending subsidies at this time?

VERONEAU: I don’t think it’s my place to speculate on what the Commission’s time frame, their thinking is.

MODERATOR: Okay. Brussels please.

REPORTER: The European Union seems to think that it would be hard to sell this idea of drawing a line in the sand that the Americans are suggesting on subsidies. It would be hard to sell that to Airbus ‘cause the 7E7 continues to get indirect (unintelligible) aid. What can you say to that?

REPORTER: Somebody repeat the question please.

REPORTER: The European’s say that it would be hard to settle this idea, the Americans are tabling, Airbus while Boeing continues to get subsidies for its 7E7?

VERONEAU:  As a factual matter it’s not clear to me that the 7E7 gets the subsidies that some have suggested but, I think in any scenario, the fundamental question here is when do you call an end to the history of subsidies to large commercial aircraft? There is parity in the market.  7E7 and the A380 based on certainly the way Wall Street and the business community reports this issue are competitors.  I’m not sure I understand the logic that the 7E7 that Airbus is entitled to subsidies for a plane to compete with the 7E7.  Based on the reading I have done, I thought that was the A380.  They both represent different visions for the future of passenger travel.  So I don’t think the facts justify an argument that now was not the appropriate time to bring an end to it, and frankly, if anything there would be much more justification for additional government support for Boeing if the goal here is to assure that each side gets the same level of government support before an end of subsidies is called.  I think a much stronger case can be made that Airbus is way ahead on that score.

REPORTER:  This is Mark Vaughan with Congress Daily.  Mr. Veroneau, can you just tell me what kind of reception did you get from European officials regarding the idea of negotiating a new agreement?  Can you say that there is… how would you gauge the level of support at this time and what does their decision of whether or not to join you in that depend on?

VERONEAU:  Well, I think that is a question really for them to answer.  My impression is that they are still reflecting on whether they are prepared to join us in the goal of moving quickly towards eliminating new subsidies.

REPORTER:  Joe Kirwin with BNA.  Yesterday you told us that the issue of subsidies is at the tipping point and I was wondering if Airbus had launched competitive airlines with 7E7 with government subsidies would that be a step too far as far the US is concerned and then that would trigger a WTO case?

VERONEAU:  Well, the tipping point that I was referring to yesterday is that the status quo is not acceptable and that we have reached a point where we need to either negotiate a new agreement or look to our other options including our WTO options.  I’ll leave it at that.

REPORTER:  What are your other options besides the WTO?

VERONEAU:  Obviously, the two options here are either renegotiate or bring a WTO case.

REPORTER:  You do not see a subsidies case as an option?

VERONEAU:  What do you mean by a subsidies case?  You mean a CVD?

REPORTER:  A CVD case even though, of course, you would have to pull out of the agreement to do that because it explicitly prohibits it but, that is not an option because if you pulled out of the agreement you’d have to wait for a year?

VERONEAU:  That is not something that is not something that we are actively considering right now.  I do not want to speak for the administration at this point, there has not been a final decision, but, based on my discussions, we are focused right now, first and foremost, on negotiating a new agreement.  And, secondarily, on the WTO options.  But, that doesn’t exclude other options, I’m just saying that we are telling you what we are focused on.

REPORTER:  Matt Feldmen, Financial Times.  Given what you have said about the EU’s views about ending subsidies, the fact that there’s no time schedule.  Is it fair to say that this issue will drag on and not be resolved by the time US presidential elections take place?

VERONEAU:  Well, I guess that depends on what you mean by resolution.  I don’t know.  My immediate job is to report back to Ambassador Zoellick of my sense of the meeting and where this is going and he will make his own judgment at that point as to what the best course is at this time.

REPORTER:  This is Jim Berger from Washington Trade Daily.  Can you tell us?  Does the US have a view of the amounts of subsidies on both sides?  Is there any understanding on how much is involved?

VERONEAU:   I think that it is fair to say that there are diverging views on the level of support each company has received.

REPORTER:  You claim that Boeing has received 18 billion dollars in subsidies since 1992.

VERONEAU:  I’m not…at this point there is a number of ways to calculate it.  That is a statement that I do not have a problem with [**] but I am not here today to brief on the specific substance of what our number is right now.

[**CLARIFICATION: This question was misunderstood by Mr. Veroneau who believed he was being asked about airbus subsidies not Boeing’s]
REPORTER:  Russell Find again.  Did the Brussels people, Mr. Lamy’s people say that if you went to the WTO they would file a counterclaim?

VERONEAU:  I don’t want to give a back and forth of who said what in the meeting out of respect for the meeting but let me just say that certainly our assumption is if we bring a WTO case we assume that there will be some response.

REPORTER:  Can you just give us a little bit of information about who was at the meeting and how long it took place?  Just a little bit of background on that?

VERONEAU:  Well, we met for almost five hours.  I was the US lead and Peter Carl the Commission’s lead.  I think I should leave it at that.  That is already publicly known, but I don’t think that I need to, or ought to, list exactly who everyone was at the meeting.

REPORTER:  Listening to both sides, you don’t seem to have agreed on objectives, on principles, on a modus operandi, or even on a timetable for these negotiations.  Did you agree on anything of substance, and if so why?  If not, why did you describe these discussions as constructive?

VERONEAU:  I didn’t describe these as constructive; we said they were useful and frank.  We, two things that we did agree on certainly was that if we have a new agreement that it should have robust transparency provisions and good enforceability provision.  And the reason I described the meeting as useful and frank because I think that is from our perspective an accurate…I have also said it was the first (unintelligible) cordial meeting, so I do not want to imply with anything but that.  They are good and decent professionals, but it was from our perspective a constructive meeting would have been one that assumed the goal of ending subsidies now and it was a discussion about how best to do that and because we still don’t have a meeting of the minds on the goal I think it would be from our perspective on overstatement to describe it beyond the way I described it.

MODERATOR:  US side please.

REPORTER:  This is Mark Drajem at Bloomberg News.  I’m wondering on the indirect subsidies, the EU said that it wants this quid pro quo in terms of indirect subsidies.  Do you accept that view? 

VERONEAU:  Well, we discussed that issue, I mean the term indirect subsidies I think is an imprecise one. In my estimation, you know, you are either subsidizing an enterprise or you are not subsidizing an enterprise.  And the form of those subsidies is secondary.  And our goal is to secure an agreement that eliminates subsidies and has strong anti-circumvention aspects so that subsidies, regardless of what form they take, are addressed.  And we had a discussion about the importance of speaking clearly and distinguishing between benefits, loosely speaking, and subsidies in a very specific definition.  Obviously any agreement that we could hope to secure would have to be, as the WTO agreement is, very clear on what is a subsidy and what is not.  And as I was describing to some you yesterday, if I make widgets and I sell some of my widgets to the government and some of my widgets in the private sector, that obviously is a benefit to the extent that I have two large customer bases.  That may be a benefit to me and my company to the extent that it lowers cost of production and has various synergies.  But that is not a “subsidy,” and I think even the most far-reaching and expansive discussion and any discussions about how to define subsides, certainly in the WTO context, have never defined subsidies so broadly.  And I would distinguish that from a hypothetical.  If I am selling widgets to the government and the government is paying twice the commercial rate for those widgets, I think in that scenario it certainly begs the question of are there, is the government subsidizing the government procurement so as to benefit the commercial side. 

So in principle I would agree that government procurement should not be outside of any agreement to eliminate subsidies.  We would be, the United States has as a strong or stronger interest ensuring that if certain direct subsidies such as launch aid are eliminated that they not be allowed to be repackaged through government procurement contracts with Airbus or EADS or BAE. 

The other example of indirect that has been discussed is benefits that may flow from research and development contracts.  There is, pursuant to Europe’s consent to the Boeing-McDonald-Douglas merger in 1997, there is an obligation on Boeing already that any fruits of government funded research that flow to commercial aircraft must be made available through licensing agreements to Airbus.  That seems a useful model to address this.  It’s not entirely clear to me the extent of government R&D projects that ultimately flow to the commercial aviation, but to the extent that those benefits and those fruits exist, Boeing has already obliged to share those with Airbus and one of our goals in securing a new agreement would be to make that a bilateral obligation so that both sides receive the benefit of government funded research that may benefit the development or production of large commercial aircraft.

MODERATOR: The European side again.

QUESTION: Jeff Mason from Reuters.  You said that your job was to report back to your boss, Representative Zoellick, about what your impressions were today.  What do you plan to tell him?

VERONEAU:  I won’t answer that.  I mean I told you what my impression of the meeting was that it was a useful and frank discussion, but I will say to the privacy of my discussion with my boss as to my complete report.

QUESTION:  Mr. Veroneau did you raise the US goal of using the WTO definition of subsidy in a future agreement and what was the response?  And if one thinks about it, if you want the AFCM definition and you want enforceability and you want transparency, why not just accept that the AFCM covers the civil aircraft sector?  Why bother with the bilateral agreement?

MODERATOR: John, this is Neena.  Let’s just see if there is an American reporter out there who has a question.

QUESTION: Dominic Gibbs. Seattle Times.  Mr. Veroneau, you just addressed various indirect subsidies to Boeing that they weren’t subsidies.  Did the European side bring up the Washington State subsidy for the 7E7?  The 3.2 billion in tax breaks.

VERONEAU:  We discussed that matter.

REPORTER: And what’s their view of that and what’s you view of it?  Is that a subsidy?

VERONEAU:  We discussed it.  I think I will leave to the privacy of the discussion how they characterize it and how we characterize it.

REPORTER: Would you just say if it is indirect or direct or if it’s a subsidy at all?  At least that much?

VERONEAU:  It’s an issue that we see somewhat differently.

MODERATOR #2: Back to the European side.

MODERATOR #1: We did have a question previously. Did you want…

MODERATOR #2: Yes, that was the 5th question from the same reporter.

REPORTER: So what are you trying to do since nobody else was asking the question and that was a substantive question and a legitimate one?

MODERATOR #3: Hello, this is Richard Mills from the USTR. Jutta, you’ve had about six questions and we’re trying to spread it around so we can go back now to the European side please.

MODERATOR #1: Okay. We can go back to the European side. Paul?

QUESTION:  Using the WTO definition of subsidies according to the Europeans is not a good idea because that definition is designed for export subsidies and not for domestic subsidies.  What would you reply to that?

VERONEAU:  Well, we’re suggesting that the definitions, you know, you need to have a useful agreement you need to define subsidies somehow and we think that the SCM definition of subsidy is the right place to start.  We are not prejudging whether it needs to be tweaked in one direction or another and to somewhat answer a question earlier, the benefit of doing a bilateral agreement is that based on the uses at the bases, the SCM definition of subsidy is it allows us to make this agreement, tailor it to large commercial aircraft development and production.  So we would use the SCM definition at the basis but, this agreement would, to the extent that it would be tailored for this market sector and have its own transparency requirements and enforceability, I think makes it, would make it a very important and useful agreement.

MODERATOR: We have another question from the US side from someone who hasn’t had a chance?

REPORTER:   Dar Haddix UPI.  My question is if this launch aid is repealed what other industries will be affected besides the aircraft industry and can you talk about the negative and positive repercussions that could occur just briefly?

VERONEAU:  I can’t.

REPORTER: Okay.

MODERATOR: We have time I think for one more question. Anybody who has not had a chance from the European side. 

QUESTION:   Could you just say why you didn’t push to have some timetable set today if you say this is a matter of urgency?

VERONEAU:  Because I wanted to brief Ambassador Zoellick and this is his decision about what the next step should be so it was not my place to suggest what those next steps should be.

QUESTION:  Is Ambassador Zoellick still meeting with Pascal Lamy at the end of the month and will he discuss this?

VERONEAU:  I will leave that to Rich Mills back in Washington. I don’t know what the…

RICHARD MILLS:  I’m sorry who is it that just asked that question?

QUESTION:  That was Dominick Gibbs again. Seattle Times.

RICHARD MILLS:  There’s been a lot of press reports about the Commissioner coming over to Washington and we haven’t made an announcement about any kind of details related to the meetings but, suffice it to say I think this will be part of the bilateral discussions that they have.

MODERATOR:  OK Mr. Veroneau has to leave at this point.  Thank you all very much for the US side and European side.

 
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