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WASHINGTON (Reuters) - The United States on Friday rejected a European Union plan to eliminate subsidies provided to Airbus EAD.PA and said it would ask the World Trade Organization for permission to impose trade sanctions that could amount to $7 billion to $10 billion annually.
The move marks a low point in the world's biggest trade dispute, largely centered on European aid for the Airbus A350 aircraft. But an end to the battle over aircraft subsides could be some time away and a negotiated settlement may still be most likely outcome.
The EU has its own case against U.S. support for Boeing
(BA.N) and resolving that will be part of the final mix.
But U.S. officials exploited a tactical advantage derived from the fact the WTO has already issued a final ruling in the U.S. case against Airbus subsidies while the EU case against Boeing subsidies is still pending.
"The WTO clearly found that every single grant of launch aid to Airbus, for every single aircraft that company produced, was a WTO-inconsistent subsidy that caused unfair adverse effects to U.S. industry and jobs," U.S. Trade Representative Ron Kirk said in a statement.
"Our action today underscores what we have said all along - that the United States cannot accept anything less than an end to this subsidized financing," Kirk said, referring to European "launch aid" loans for Airbus.
The United States is still prepared to negotiate with the EU with the "goal of ending subsidized financing at the earliest possible date," Kirk added.
The transatlantic aircraft dispute is the world's largest trade fight, affecting more than 100,000 jobs in an airplane market worth more than $2 trillion.
John Clancy, a spokesman for the European Commission in Brussels, called the U.S. sanctions threat "premature and not in line with the appropriate sequence of events in WTO disputes. We will nevertheless review the requests carefully and consider the next steps."
Last week the EU presented a plan to comply with a WTO appellate body ruling against European government support for Airbus in a case brought by Washington in 2004.
A careful review of that document "appears to show that the EU has not withdrawn the subsidies in question and has, in fact, granted new subsidies to Airbus' development and production of large civil aircraft," Kirk's office said, in apparent reference to Airbus's A350 aircraft.
As a result, Washington is seeking consultations with the EU on the compliance plan and "also requesting authorization from the WTO Dispute Settlement Body in Geneva to impose countermeasures annually in response to the EU's claim that it fully complied with the ruling in this case."
"The amount of the countermeasures would vary annually, but in a recent period would have been in the range of $7-10 billion. This step will preserve U.S. rights, but any actual imposition of countermeasures would not occur until after further WTO proceedings," Kirk's office said.
Any U.S. sanctions could spill outside the aerospace sector, bringing other EU industries into the dispute to put pressure on Airbus. But the WTO would have the final word on how much the United States could impose.
The WTO appellate body ruled this year that Airbus had received around $18 billion in illegal subsidies over many years to help develop a string of aircraft including the A300, A310, A320, A330, A340 and A380.
However, it did not examine European government support for Airbus' latest project, the A350, which was launched after the United States filed its WTO complaint in 2004 to compete with Boeing's 787 Dreamliner.
John Magnus, president of TRADEWINS, a trade law and policy consulting firm, said the United States was unlikely to actually impose sanctions in the dispute, although it would continue to threaten that step.
It's more likely the two sides will eventually negotiate a deal, although getting there will be "slow and dreadful" because the United States and the EU still sharply disagree over what WTO rules allow, despite the rulings, Magnus said.
Richard Aboulafia, an aviation analyst for the Teal Group, said the EU was unlikely to give up support for Airbus.
"It's really tough to get people to change their ways in this game. They simply find different means to achieve exactly the same ends ... This is pretty much the only industrial policy the EU has ever done that works," Aboulafia said.
A spokesman for Airbus said the U.S. call for sanctions was based on "empty claims" because the EU had taken sufficient steps to address illegal subsidies found by the WTO.
Still, Boeing cheered the U.S. action, saying European governments cannot be in compliance with the WTO's ruling unless they stop "noncommercial launch aid" for the A350.
The EU cannot avoid the enforcement of the WTO ruling by allowing subsidies to pop up on similar products, just like a popular arcade game, Boeing's lead outside lawyer said.
"The WTO is aware of the Whac-A-Mole game and they say you don't play that here in Geneva," Robert Novick, partner at U.S. law firm WilmerHale, told Reuters.
Meanwhile, a WTO panel in the EU case against U.S. support for Boeing ruled in March that the U.S. aircraft manufacturer had received about $5 billion in WTO-illegal subsidies.
Both sides appealed the ruling and a final decision in that case is expected next year.
Assuming the EU prevails on its claims, the United States would have to present its plan for complying with the ruling.
If not satisfied, Brussels could also begin proceedings to impose retaliation. However, U.S. officials contend their victory dwarfs the EU win against Boeing support.
Additional reporting by Ben Deighton in Brussels and Tim Hepher in Paris; editing by Xavier Briand and Chris Wilson