updated 10/18/2004 12:41:46 PM ET 2004-10-18T16:41:46

The European Union was considering Monday whether to levy punitive tariffs against Boeing Corp. — the main beneficiary of U.S. tax breaks found to violate global trade rules. The move came despite a U.S. warning that it could aggravate a trans-Atlantic fight over subsidies to Boeing and its European rival, Airbus.

EU officials denied they were linking the two cases at the World Trade Organization, but the dispute cast a shadow over U.S. Trade Representative Robert Zoellick's visit Monday to bid farewell to his departing European counterpart, EU Trade Commissioner Pascal Lamy.

U.S. Congress passed a bill last week repealing corporate tax breaks that the WTO ruled illegal two years ago. But EU officials are leaving their tariffs in place while they examine whether some elements — including a transition period and grandfathering clauses — meet the WTO requirements.

Although Boeing was the biggest beneficiary of the U.S. breaks, it was not on the EU's list of American goods targeted for tariffs — partly because the Chicago-based company has a lot of European customers and suppliers.

But there were fears that could change as a result of the dueling complaints filed this month at the WTO. The United States, prodded by Boeing, accused EU governments of unfairly subsidizing their leading aircraft maker, Airbus. The EU responded with a countersuit against U.S. support for Boeing.

EU trade spokeswoman Arancha Gonzalez denied the EU was looking to punish Boeing, although she noted it was the "main beneficiary" of the tax breaks. Under the new bill, Boeing can continue to get rebates for planes already on its order books.

"The question is: Is there compliance or not? If there is compliance, we have solved the problem. If there is not compliance we have not," she said.

Zoellick, who has called on the 25-nation EU to lift the tariffs, warned against linkage in an interview in Monday's Financial Times. "If one does that, it puts pressure on others to do that," he was quoted as saying. "I hope that's not the course they choose."

He and Lamy met privately Monday but no announcements were expected.

Officials said they did not expect them to agree on a date for WTO-mandated consultations.

The EU has proposed Oct. 28-29 — just before the U.S. presidential election — but has yet to get a reply from Washington.

Monday's meeting was expected to be the last between the two in their official capacities. Lamy's term ends at the end of this month, while Zoellick is rumored to be considering leaving his post after the election.

Zoellick's spokesman declined to comment on those rumors.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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