After three acrimonious months of trying to negotiate a settlement in the epic Boeing-Airbus trade dispute, the United States and the European Union are right back where they started: on the brink of a major international trade war.
The U.S. Trade Representatives' office issued a statement Friday saying that the self-imposed deadline for talks between the United States and the EU will pass on Monday without even the whiff of an agreement.
That opens the door for the United States to proceed with its case against the EU before the World Trade Organization. It also means the Europeans are free to extend new government loans to Airbus SAS to help develop a new airplane slated to compete with Boeing Co.'s new 787 wide-body.
However, U.S. trade spokesman Richard Mills said that as long as the Europeans refrain from offering Airbus new subsidies, the United States it will continue to work for a settlement. Otherwise, he warned, the United States will seek relief through WTO litigation.
EU Trade Commissioner Peter Mandelson said Saturday that "both sides should now pause for further thoughts and review the situation."
Mandelson repeated his earlier call for the United States and EU to return to the negotiating table and piece together an interim accord after they rethink their positions.
"The EU remains interested in reaching an initial agreement that reduces the levels of government support in this sector and completing a comprehensive agreement in the longer term," he said. "I stand ready to continue negotiation."
The dispute over aircraft subsidies simmered for a decade before boiling over and going to the WTO on Oct. 6. The United States filed the initial complaint, saying Airbus pocketed more than $15 billion in government loans that amounted to illegal aid under global trade rules. The EU immediately countered, saying Boeing has benefited from unfair support of as much as $23 billion.
The two sides averted an all-out trade war in January by suspending twin suits before the WTO and giving themselves 90 days to negotiate.
A WTO case would escalate tensions between the United States and Europe, whose $400 billion trade relationship has been marred by spats over U.S. export tax breaks, EU resistance to genetically modified foods and European customs procedures.