"If we conclude that a negotiated solution to end subsidies is not possible in the near term, we will return promptly to the WTO," said Peter Allgeier, Deputy U.S. Trade Representative, in prepared testimony before the aviation subcommittee hearing in the U.S. House of Representatives.

The United States and the European Union have been wrangling over the European practice of "launch aid" - financial help for the launch of large commercial aircraft - since 1985 when Airbus, partly owned by U.K.-based company BAE Systems (20 percent) and the European Aeronautic Defense and Space Agency (80 percent) was charged with improperly using subsidies to sell its aircraft.

Airbus had still not become a major market threat during the early 90s and the United States agreed to drop its case against the European Union after it reached a bilateral agreement which would limit the amount of governmental support Airbus could receive to develop large civil aircraft.

Under the terms of the 1992 WTO agreement, Airbus would be limited to using only 33 percent of subsidies in three years.

But with the advent of the A350 and speculation that the Toulouse-based Airbus was seeking governmental assistance to launch their new aircraft, the United States re-entered into WTO consultations with the EU last October arguing that any continuance of aid was a direct violation of the 1992 bilateral agreement.

Although consultations between the two parties remained unresolved, both the United States and the European Union agreed to a 90-day standstill on Jan. 11 before entering a formal dispute at the WTO.

However, the three-month negotiation term remained unfruitful with the European Union refusing to end the use of subsidies.

While both parties have remained open to continuing negotiations, the United States has been vocal about pursuing a case before the WTO to put an end to subsidies, anticipating victory in the case.

"We believe that we have a very strong case, and we are prepared to move forward," said Allgeier. "It is up to the Europeans to decide if they are prepared to withhold launch aid while negotiating an agreement, or if they'd rather take their chances in a WTO dispute proceeding."

The main argument made by the United States and the Boeing Company is that subsidies have helped Airbus to strengthen its market share.

According to U.S. industry leaders, Airbus now has more than 50 percent of the aerospace market share, making it difficult for Boeing to compete, causing the U.S. aerospace industry to hemorrhage with the loss of hundreds of thousands of jobs.

"Unfortunately, aerospace manufactures of the United States have been forced to try to compete with companies that receive these massive subsidies by the combined treasuries of European governments," said Rep. John L. Mica, R. Fla., chairman of the Aviation Subcommittee, at the hearing.

"This administration and the United State Congress cannot and will not tolerate the unfair subsidization of manufacturing, promoting, the financing or development of commercial aircraft," said Mica.

The main grievance over launch aid, which Allgeier called the most "egregious" of the subsidies provided by EU governments, is that governmental loans provided to European manufacturers are financed at low interest rates and flexible repayment options, and are dependent on the financial sales of the aircraft.

In other words, if the product line is unsuccessful then the loan is written off, and if it is successful, then Airbus would pay the loan off over an extended period of time.

The Boeing Company has argued that with Airbus' huge stake in the market, it is no longer needs subsidies. In 2003 and 2004, Airbus delivered more planes than Boeing.

"Airbus is a mature company," Richard Dalton, spokesman for Boeing told United Press International. "Its management has stated it doesn't need subsidies to develop its next airplane. Let's have a common set of rules that apply to both and compete on that basis."

While the United States has maintained that if it goes to the WTO, it will have a strong case against the European Union over the use of EU government subsidies, including the $3.7 billion in governmental loans used to develop the A380, congressional leaders questioned whether time had been lost during the 90-day negotiating period earlier this year which may result in a further setback to the U.S. industry.

"Certainly, we worked very closely with Boeing and other U.S. interests here to determine what is most advantageous, in terms of what is the best route to solve this problem," said Allgeier, responding to a question posed by Rep. Peter DeFazio, D. Ore.

Allgeier said the United States had a "high probability" of a win, which would not only gain an elimination of future launch aid, but would also see the repayment of aid given by EU governments to the Airbus A350 and A380.

Despite warnings that a WTO litigation would be burdensome, Boeing and the United States have committed themselves to an end to subsidies.

"Like the U.S. government, Boeing prefers a negotiated settlement. However, if the U.S. government determines that WTO litigation is necessary to end subsidies, then we support the U.S. government in such action," said Dalton.

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