EU in secrecy spat with US over A350 funding papers

By Sebastian Moffett

BRUSSELS, Oct 8 (Reuters) - The European Union accused the United States of breaching confidentiality surrounding the filing of economically sensitive documents on the funding of the Airbus A350 in the latest twist to a long-running aircraft subsidy dispute.

The EU's executive Commission spoke out on Monday after the U.S. Trade Representative's office confirmed a Reuters report that it had received the documents after requesting them from the World Trade Organization over a month ago.

It is the first time the funding of the A350 - Europe's answer to the Boeing 787 - has been drawn directly into the world's largest trade dispute and comes at a sensitive time as Airbus parent EADS prepares to expand in the United States.

"The EU regrets that the US government has disregarded the confidentiality of WTO proceedings by referring to the EU's submission of documents last week," EU Trade Spokesman John Clancy said, in a rare criticism of the United States for flouting secrecy protocol.

A U.S. embassy spokeswoman in Brussels declined comment.

Washington has called on Airbus to stop receiving loans from its host European nations - Britain, France, Germany and Spain - and argues that the WTO should take loans for the future A350 into account when evaluating penalties for earlier support.

The EU says the A350 is outside the scope of the subsidy dispute which was set up before the European planemaker decided to launch the aircraft, due to make its maiden flight in 2013.

The WTO has found that Airbus and U.S. rival Boeing both benefited from billions of dollars of unfair subsidies in a pair of trade complaints now in their ninth year.

The clash over the A350 risks an escalation of the marathon dispute just as Airbus parent EADS prepares to seek U.S. backing for a potential merger of EADS with Britain's BAE Systems , which has significant interests in the United States.

The $45 billion merger would be subject to thorough vetting by U.S. authorities, including the U.S. Trade Representative's office, and is expected to draw close scrutiny from Boeing

and its supporters in Congress.

Critics of EADS fear the combination of BAE's extensive U.S. operations and suspected ongoing subsidies to Airbus might give the group unfair pricing power and damage the U.S. industry.

But most trade specialists doubt the WTO dispute will be drawn into the merger approval process because the panel which vets such moves, the Committee on Foreign Investment in the United States, generally sticks to a pure security mandate.

A U.S. source said outside estimates placed the loans paid to Airbus for the A350 at around $4.5 billion.

Airbus has said any payments would comply with WTO findings.

The two sides have been engaged in legal trench warfare over aircraft subsidies for over eight years, with testimony, rulings and appeal verdicts running to thousands of pages.

After a protracted legal battle over the status of the plane, the U.S. government said on Saturday it had received EU documents on the A350 a month after requesting them.

The EU spokesman said the Geneva-based WTO had asked for the documents merely to decide whether they were relevant.

The United States seeks up to $10 billion in sanctions against the EU for not eliminating European government support mainly in the form of government loans to Airbus.

The EU last month asked the WTO for the right to impose sanctions worth up to $12 billion annually in the largest ever sanctions request, triggered by research aid to Boeing.

Analysts say it could be years before the huge dispute plays itself out in sanctions or a settlement, while hanging over U.S.-European relations as a sporadic irritant in other issues.

(Editing by Tim Hepher and Hans-Juergen Peters)

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Keywords: TRADE AIRBUS/A350