Mar 24, 1987

U.S. BACKS OFF FROM CONFRONTATION OVER AIRBUS.

GENEVA MARCH 20 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The U.S. has backed away from its confrontational approach to the EEC over the "airbus", and instead of raising a dispute and having recourse to dispute settlement procedures of the GATT civil aircraft code, has agreed to seek clarifications, without reference to a dispute, of the code provisions relating to government-procurement and government supports and export credits for sales of civil aircraft.

The committee of the "Trade in Civil Aircraft", code, which met Friday morning agreed to a procedural decision for future consideration in the committee of the substantive issues posed by the U.S. relating to the type of government aid and finance that could be provided to manufacturers of civil aircraft.

The two U.S. manufacturers, Boeing and Douglass Mcdonald, who between them have an overwhelming share of world trade in this sector, have nevertheless become alarmed over what they see as danger of "inroads" into the U.S. market by the European Airbus Consortium, and have been lobbying for U.S. counter-attack on this front.

As a result, the U.S. has been challenging the support provided by several West European Governments for their joint airbus project, and had originally sought to agitate it before the code committee in terms of its dispute settlement procedures.

The EEC member countries have flatly rejected the U.S. charge, and have pointed to the support and help the two U.S. manufacturers get through government military procurement contracts, and the vas sums spent through Pentagon contracts on R and D.

Much the R and D effort on the military contracts, the EEC has noted, has had its spin-off on the civilian side for the two aircraft manufacturers, and the U.S. should be the last to complain of government aid.

At one stage it looked as if the U.S.-EEC dispute would flare into another major trade fight.

Having won its fight over U.S. corn imports into Spain (by isolating France on threat of penal duties on brandy), the U.S. apparently hoped to score another victory over the airbus dispute.

But the U.S. actions brought about a solidification of West European ranks, with U.K., West Germany, and Spain lining up with France, and the U.S. decided to back down.

After talks between Washington and key european capitals and the EEC in Brussels, as also informal consultations here over the last two days, the U.S. withdrew its "complaint" against the EEC on the issue, and resubmitted its "comments", and has sought a clarification of articles four and six of the code.

Article four relates to government-directed procurement, mandatory subcontracts and inducements for purchase of any particular aircraft. Article six deals with government support, export credits and aircraft marketing.

In seeking clarifications, the U.S. also sought apparently provisions to secure "more transparency" over government support to domestic aircraft industries.

The EEC reportedly did not deal with the substance of the U.S. issues, but assessed the working of the code since its conclusion in 1979 as "rather positive".

In a reply to U.S. complaints, the EEC noted that in 1979, the U.S. share of aircraft trade had been 66 percent, and it was 81 percent in 1986. The EEC share had gone down from 24.7 percent to 17.7 percent.

A number of other participants reportedly spoke in appreciation of the fact that the issues were being sought to be addressed in a wider framework within the committee rather than the previous confrontational approach.

Several of the participants also agreed to discuss some of the U.S. ideas, but underscored the view that the "clarifications" and "interpretations" sought by the U.S. went very much beyond the original intentions of the code.

Any changes should hence be sought by renegotiating the code and its provisions, and not through so-called clarifications and agreed interpretations, it was contended.

The code committee is due to meet again on this issue sometime in July, though an earlier meeting could still be held depending on the progress in private consultations, GATT sources said.