AIRCRAFT-SUBSIDY PROPOSAL BY CANADA DRAWS MIXED REVIEWS FROM US, EC

AIRCRAFT-SUBSIDY PROPOSAL BY CANADA DRAWS MIXED REVIEWS FROM US, EC

A Canadian call for tighter discipline on government subsidies for large civilian aircraft received mixed reviews from the United States and the European Community in talks here.

The offer put forward Monday in Geneva was seen by many nations with aviation interests, including Japan and Sweden, as a good basis for reaching a new global accord. Negotiators from more than 12 nations are taking part in the subcommittee proceedings of the Committee on Civil Aircraft, of the General Agreement on Tariffs and Trade (GATT), which is reviewing the U.S.-European Community agreement of July 1992, with an eye toward using this text as the basis for concluding a new multilateral accord.The offer suggests the way to proceed is to take the existing draft subsidies text negotiated in the global Uruguay Round trade liberalization talks, and modify it to take into account some special factors.

The draft GATT accord divides subsidies into three categories - non- actionable, prohibited subsidies and permissible support, but which would require compensation.

Modification of the draft code is necessary, given the industry's special circumstances: few major producers, the huge start-up investments required and the fact that those interested in entering this sector need government funds to do so, U.S.-EC negotiators say.

The U.S.-EC accord caps direct government development support at 33 percent, and also limits indirect government support to 3 percent of revenue of the civilian industry and 4 percent of revenue of an individual company.

Like the GATT subsidies text, the Canadian proposal recommends that basic industrial research, applied research, and experimental development fall in the non-actionable category and thus not subject to countervailing action, sources said.

However, it stipulates that certain research work such as non-experimental engineering, operational systems development, market research, and sales promotion, would not be allowed.

The Canadians favor setting a ceiling on total government subsidies for civil aircraft development.

The United States said it wants to see any subsidy disciplines to be tighter or better than those in the U.S.-EC text.

Sources close to the talks said that while the United States is willing to discuss the Canadian paper, it doubts whether it can meet Washington's demands.

In the meantime, the EC argued that subsidies below 33 percent should not be actionable, should be either prohibited or actionable.