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U.S., EU to talk about jets, not fight

The European Union and the United States chose negotiation over litigation Tuesday by agreeing to bilateral talks over subsidies to rival jetmakers Airbus and Boeing, avoiding for now a World Trade Organization case that could have sparked a trans-Atlantic trade war.

The world's two largest trading partners said they will spend the next three months hammering out new guidelines on government assistance for large commercial aircraft, attempting to resolve a bitter dispute over European government loans to Airbus.

The discussions are a big step toward establishing "much-needed balance in the commercial aircraft market," said Boeing chief executive Harry Stonecipher. They also put on hold, at least temporarily, any plans for EU aid for Airbus' new A350 jet, a boon for Boeing's new 7E7, the plane that Boeing hopes will win back the market lead it lost to Airbus in 2003. The 7E7 is due in 2008.

The negotiations end a bout of U.S.-EU trade brinksmanship started in October, when the two sides filed counterclaims of illegal subsidies before the WTO, which rules on global trade disputes.

In its complaint, the United Stated claimed that European governments provided Airbus with $15-billion of illegal subsidies _ mainly for "launch aid" loans that can cover up to one-third of a jet's development costs and have to be repaid only if the plane makes a profit. The United States also unilaterally withdrew from a 1992 agreement that had allowed European government loans for jet development.

The Europeans countered that Boeing had received $23-billion of improper military, state and international aid. EU-U.S. discussions broke down in December, after a 60-day WTO cooling-off period had expired.

Under Tuesday's agreement, previous and current subsidies are left untouched. No new subsidies can occur until April at the earliest. Should talks fail, subsidies and WTO cases could be pursued again.

"When disputes arise in trans-Atlantic trade relations, we should try to solve them by dialogue and co-operation," said European trade commissioner Peter Mandelson.

Paul Nisbet, aerospace analyst with JSA Research in Newport, R.I., said anything that injects uncertainty into A350 development is a victory for Boeing in its battle to regain lost market share.

Airbus did not comment on the announcement. Its parent companies, European Aeronautic Defence and Space Co. and Britain's BAE Systems, said in a joint statement that the trans-Atlantic breakthrough was positive, "but much work remains to be done in order to ensure a level playing field in the commercial aircraft market."

The new talks also ease U.S.-EU trade tensions as President Bush prepares for a February fence-mending trip to Europe.