Clinton warns of Boeing trade war

President Bill Clinton warned yesterday that Europe and the US were in danger of talking their way into a trade war over the $14bn (pounds 8.5bn) merger of Boeing and McDonnell Douglas.

His warning came as Boeing and the European Commission appeared no nearer to agreeing a deal to prevent the EU vetoing the merger and imposing punitive fines on the US aircraft manufacturer.

Amid rising tensions on both side of the Atlantic, fuelled by US allegations that Europe was opposed to the deal for nakedly political reasons, President Clinton told a White House press conference: "There's an orderly process for our handling this and I think we'd better let the orderly process play itself out before we talk ourselves into a trade war."

Although the President said that he thought a trade war could probably be avoided, he indicated that retaliatory action would follow any EU veto of the Boeing deal. He said: "I'm concerned about what appear to be the reasons for the objection to the Boeing-McDonnell Douglas merger by the European Union. And I think that it would be unfortunate if we had a trade stand-off with them."

A spokesman in Brussels for the EU Competition Commissioner, Karel van Miert, said it would take a "miracle" to break the deadlock before the EU made its final ruling on the merger in five days' time. It has already ruled provisionally that the merger is anti-competitive and has told Boeing that it must offer more concessions to allay its concerns about domination of the civil aircraft market.

The US Senate unanimously approved a motion condemning the EU for its threat to block the merger. The Republican Senator for Boeing's home state of Washington, Slade Gorton, said: "The sole reason for the European Commission's criticism and imminent disapproval of the merger is to gain an unfair competitive advantage for Airbus."

But the President of the Commission, Jacques Santer, hit back immediately, telling a news conference: "We are looking at the Boeing-McDonnell Douglas merger according to very objective criteria ... there are no political considerations."

The EU's panel of anti-trust advisers has concluded that the deal should be blocked because it will give Boeing a hold over 84 per cent of the world aircraft fleet. The EU is demanding concessions from Boeing on the exclusive supply deals it has signed with US airlines and spill-over of funds from defence contracts into civil airline programmes.

However, America's Federal Trade Commission has approved the deal without conditions, saying it will have no impact on competition.

The EU continues to insist that politics are not involved. "This is not a trade issue, this is a competition question," said Mr Van Miert's spokesman.

But competition lawyers in both Brussels and Washington sense that the Commission's objections arise at least in part from the desire to strengthen the position of Airbus, which will be left as the only rival manufacturer of large commercial aircraft.

"People are sensing that this is all politically motivated, that the EU is protecting its champion and the US is protecting its champion," said one lawyer.

The Commission is seeking to re-open a bilateral agreement on aircraft subsidies signed in 1992 which limits indirect support and caps direct launch aid at 33 per cent of the cost of new programmes.

If the Commission goes ahead with its threat to veto the merger it could fine Boeing 10 per cent of turnover as well as fining any EU company that does business with Boeing. Commission sources say it could also seize any new Boeing jets being delivered to customers in Europe as payment of the fine.

It is the latest in a long line of trade disputes between Europe and the US. The most recent one was Washington's use of the Helms-Burton Act to penalise European companies that had dealings with Castro's Cuba.

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