European Union closer to trade war with U.S.

The European Union has threatened to impose $12 billion a year in sanctions against the United States in response to Boeing having received US government subsidies, impacting Europe's Airbus's ability to compete fairly.

The European Union inched closer to a trans-Atlantic trade war Thursday, saying it would seek to impose up to $12 billion a year in sanctions against the United States in retaliation for U.S. government subsidies to Boeing.

The European Commission, the EU executive, said it was seeking the sanctions to compensate for the impact of illegal subsidies to Boeing that it said gave Boeing an unfair advantage over its European archrival, Airbus.

The move, which follows a similar trade threat against Europe made by Washington this year, is the latest salvo in a seven-year battle over aircraft subsidies.

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Nonetheless, the WTO has found that both Boeing and Airbus have received improper government assistance.

A World Trade Organization appellate body affirmed in March that Boeing had received at least $5 billion in improper subsidies from the U.S. government to develop the 787 Dreamliner and other aircraft.

But in a separate case, the organization found that Airbus had benefited from four decades of improper subsidies from European governments. The WTO ordered both sides to end the subsidies.

The WTO has also concluded that Airbus, a unit of European Aeronautic Defense & Space, received $15 billion in loans from European governments at below-market interest rates, as well as several billion dollars in grants to build the A-380 superjumbo and five other best-selling models.

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The US has responded by stating that it has eliminated a number of subsidies enjoyed by Boeing. The European Commission remains unsatisfied.

On Sunday, the Office of the U.S. Trade Representative said Washington had eliminated certain payments that Boeing had been receiving from the Defense Department and NASA. A number of tax breaks and beneficial funding programs to Boeing had also been removed, the trade representative said.

The European Commission said Tuesday, however, that these steps did not fully offset the adverse trade effects to Airbus.

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The European Commission has filed a case with the WTO and has indicated that sanctions will be imposed.

I'm surprised that the European Union is being so bullish but perhaps they are just responding to the US having threatened the same thing earlier in the year.