WASHINGTON - The European Union and the United States chose negotiation over litigation yesterday by agreeing to bilateral talks over subsidies to rival jet makers Airbus SAS and Boeing Co., avoiding for now a dispute that could have sparked a trade war.
The trading partners said they would spend the next three months hammering out new guidelines on government assistance for large commercial aircraft, attempting to resolve the bitter dispute between Boeing and Airbus.
The discussions are a big step toward establishing "much-needed balance in the commercial aircraft market," said Boeing Chief Executive Officer Harry C. Stonecipher.
They also put on hold, at least temporarily, any plans for EU aid for Airbus' new A350 jet, which is being developed to compete with Boeing's new 7E7 Dreamliner, the plane the American firm hopes will win back the market lead it lost to its European rival in 2003. The 7E7 is expected to debut in 2008.
The negotiations end a bout of U.S.-EU trade brinkmanship started in October, when the two sides filed counter-claims of illegal subsidies before the World Trade Organization, which rules on global trade disputes.
In its complaint, the United States claimed that European governments provided Airbus with $15 billion in illegal subsidies - mainly for "launch aid" loans that can cover up to a third of a jet's development costs and only have to be repaid if the plane makes a profit. The United States also unilaterally withdrew from a 1992 agreement that had allowed European government loans for jet development.
The Europeans countered that Boeing had received $23 billion in improper military, state and international aid.
EU-U.S. discussions broke down in December, after a 60-day WTO cooling-off period had expired.
Under yesterday's agreement, previous and current subsidies are left untouched. No new subsidies can occur until April at the earliest. Should talks fail, subsidies and the WTO cases could be pursued again.
"When disputes arise in trans-Atlantic trade relations, we should try to solve them by dialogue and cooperation," said European Trade Commissioner Peter Mandelson.
Paul H. Nisbet, aerospace analyst with JSA Research in Newport, R.I., said anything that injects uncertainty into A350 development is a victory for Boeing in its battle to regain lost market share.
Airbus did not comment on the announcement. Its parent companies, European Aeronautic Defence and Space Co. NV and Britain's BAE Systems PLC, said in a joint statement that the trans-Atlantic breakthrough was positive, "but much work remains to be done in order to ensure a level playing field in the commercial aircraft market."
The new talks also ease U.S.-EU trade tensions as President Bush prepares for a February fence-mending trip to Europe.
Marc L. Busch, a professor of trade at Queen's University in Kingston, Ontario, said the president will have a much better chance of healing rifts with Boeing-Airbus "on the back burner" rather than before a panel that could have imposed sanctions and possibly provoked retaliation on other trade fronts.
But Busch added that talks remain only that, not a final agreement.
Both sides agreed that any final solution must be global and enforceable for the discussions to have any long-term benefit. U.S. trade officials were pleased that the Europeans are willing to discuss the end of launch aid, but still fundamentally disagree with them on how American defense contracts and state aid programs help Boeing.
Any enforcement mechanism for an agreement is also unknown, although both sides praised the call for "strong dispute settlement procedures" found in the terms of negotiation.