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UPDATE 2-EU open to talks with U.S. in aircraft subsidies dispute

Alissa de Carbonnel and Andrea Shalal

(Adds details, background, U.S. official's quote)

BRUSSELS/WASHINGTON, July 2 (Reuters) - The European Union said on Tuesday it was open to talks with Washington in a dispute over aircraft subsidies while preparing retaliation after the United States added olives, Italian cheese and Scotch whisky to a list of goods in line for hefty tariffs.

Just days after reaching a truce in a U.S.-China trade war, the U.S. Trade Representative's office (USTR) opened the new front with Europe on Monday in the long-running dispute over mutual claims of subsidies to Airbus and U.S. rival Boeing.

It added extra products worth $4 billion to a list of EU goods worth $21 billion that are eligible to be hit with tariffs after 15 years of argument at the World Trade Organization - alarming industries on both sides of the Atlantic.

The actual total amount of tariffs is expected to be lower since the United States has asked the Geneva body for approval to impose $11.2 billion of tariffs due to European subsidies for Airbus and this is still subject to WTO arbitration.

But by expanding the list of eligible goods to include farm produce from pears to pork, Washington upped pressure on the EU while sending supportive signals to a key domestic group, trade sources said.

Many of the items added to the potential pool of products reflected concerns voiced during two days of hearings in April, including from dairy farmers.

U.S. President Donald Trump won election in 2016 in large part by winning the rural vote, but farmers have been hit hard by his tariffs on China and subsequent retaliatory measures.

The addition of food items could help placate those concerns at a time when the U.S. election campaign is heating up and farmers are starting to run out of patience, the sources said.

The WTO has found that the world's two largest planemakers received billions of dollars of harmful subsidies in a pair of cases marking the world's largest-ever corporate trade dispute.

The United States and EU have each threatened to impose billions of dollars of tit-for-tat tariffs, with Washington first in line to seek tariffs under the WTO timetable.

Washington could announce in weeks which items would face U.S. tariffs, White House trade adviser Peter Navarro told CNBC.

"What were seeking is to get fair and reciprocal trade without heavy subsidies from foreign governments to take our jobs," he said.

NEGOTIATIONS 'WITHOUT PRECONDITIONS'

The EU hit back at the latest list of potential tariffs, saying the dispute should be adjudicated by the WTO.

"The figures quoted by the USTR are based on U.S. internal estimates that have not been awarded by the WTO," an EU spokesman said.

The latest list of potential U.S. tariffs drew criticism from industry groups that stand to suffer.

"Exports of Scotch Whisky to the U.S. have been zero tariff for 20 years, so it is disappointing that Scotch Whisky has been drawn into this dispute," the Scotch Whisky Association said, urging both sides to avoid hurting consumers and jobs.

The EU said it remained open to negotiations "provided these are without preconditions and aim at a fair outcome," but added it was also preparing to retaliate as soon as the WTO arbitrator had ruled on its rights to do so.

Washington signaled its openness last month to working on an enforceable mechanism to govern government subsidies for aircraft production, potentially resolving the dispute which has taken up thousands of pages of rulings.

One U.S. source said there had not yet been much of a reply.

The USTR said it would hold a second public hearing on its list of potential tariffs on Aug. 5.

(Additional reporting by Alistair Smout in London, Tim Hepher in Paris, Tom Miles in GenevaEditing by Frances Kerry and Cynthia Osterman)