updated 5/31/2005 9:55:10 AM ET 2005-05-31T13:55:10

The European Union decided Tuesday to file a counter complaint at the World Trade Organization against the United States, claiming Boeing Co. receives illegal aid — launching a new trade war with Washington.

The move, announced by EU trade chief Peter Mandelson, reactivates a legal process at the WTO that was frozen by the EU when it entered negotiations with Washington in January to try to cut aid to both U.S.-based Boeing and its European rival Airbus. It is also a reaction to Washington’s decision late Monday to abandon months of talks and take the EU to a legal panel at the WTO for Airbus subsidies.

“I can assure you Europe’s interests will be fully defended,” Mandelson said, adding that he was “disappointed that the United States has chosen this confrontation with Europe.”

Mandelson blamed the United States for escalating the dispute into a full-blown trade war.

“America’s decision will, I fear, spark the biggest, most difficult and costly legal dispute in the WTO’s (10-year) history,” he said, adding it would be “manifestly expensive and (involve) quite destructive litigation.”

Mandelson said it would take years to resolve the standoff. “We will have to come back and negotiate,” he said.

In announcing the U.S. decision late Monday, Trade Representative Rob Portman said the Bush administration felt it had to act because of preparations being made by EU member nations to commit $1.7 billion to Airbus for developing a new airplane, the A350, which is seen as a direct competitor to Boeing’s new 787 Dreamliner in the market for midsize, long-distance jets.

“We still believe that a bilateral negotiated solution is possible, but the negotiations won’t succeed unless the EU recommits to ending subsidies,” Portman said.

The Dreamliner seats 200 to 300 people and is expected to be available for delivery in 2008. The A350 will not be available until 2010.

Mandelson said the U.S. move meant to stop aid to Airbus was ironic because the WTO action now opens the door for EU governments to feed Airbus the aid it needs to launch the new model.

“If the Americans had opted for a deal I offered on the table, and accepted a negotiated settlement, they would have immediately seen a sharp reduction” in launch investment, said Mandelson.

“This will take years to resolve, and in the meantime it’s open to Airbus to receive any amount of launch investment from member states prepared to make that investment.”

Mandelson said however that investment would be repaid to governments, unlike aid to Boeing.

“Nothing of the like exists in respect of Boeing, not one cent, not one dollar has to be paid back by Boeing,” he said.

Mandelson lashed out at Boeing, saying it was more than coincidence the U.S. decision, which he said was heavily pushed by Boeing, came just ahead of next month’s Paris Air Show, where Airbus was to announce the launch aid for the A350.

He said weekend comments by Boeing Chairman Lewis Platt against the EU in a newspaper interview were unfair.

Platt said it seemed unlikely the EU was negotiating in good faith.

“To characterize our approach as he did, it stone walled the whole thing,” Mandelson said. “That did not correctly represent me or characterize the approach we were taking.”

Mandelson said he and Portman agreed to keep personalities out of the fight, and keep it from damaging other areas of trans-Atlantic ties. The previous rounds of talks were mired in back-and-forth accusations and attacks on personalities, reflecting the complexity and sensitivity of the dispute.

The counter suit actions followed an offer from the EU on Friday to resolve the dispute. U.S. officials said the offer was not enough.

Mandelson said he offered “to negotiate a 30 percent reduction in launch investment available to the A350 in return for a similar offer for Boeing.” But U.S. officials viewed the offer as a step back from an earlier goal to eliminate all subsidies.

Airbus is 80 percent owned by the European Aeronautic Defence and Space Co. Britain’s BAE Systems PLC owns the remainder.

EADS and BAE Systems warned that the opening of litigation and the trade war was “in the interest of none of the stakeholders,” and hoped the WTO panel could find a fair solution.

The companies said Boeing’s 787 had become “the world’s most subsidized airline ever.”

On Monday, Boeing spokesman Russ Young said the company strongly supported the U.S. trade representative’s decision but still hoped for a settlement.

“We agree with the USTR that a negotiated settlement is preferable and hope serious U.S./EU discussions will continue as litigation proceeds,” he said.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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