New OECD Pact On Aircraft Subsidies 'Levels Playing Field'

The U.S. said on July 30 that an international agreement governing government financing of aircraft exports will "level the playing field for the U.S. airline industry by eliminating or sharply reducing official financing subsidies available to their foreign competitors." Members of the Organization for Economic Cooperation and Development and Brazil signed the agreement on aircraft export credits on July 30.

The OECD estimated the value of transactions that have benefited from subsidies in the past few years amounts to between $7 and $10 billion per year.

"The agreement, covering all types of civil aircraft, from jumbo jets to small planes and helicopters, concerns the interest rates, loan guarantees and other conditions applied to export credits for aircraft sales," an OECD statement said.

The U.S. Treasury called the understanding, reached after more than two years of negotiations, "a significant international economic policy achievement. By requiring government financing to closely track the market, the understanding will allow civil aircraft sales campaigns to concentrate purchase decisions on price and quality, where U.S. producers excel, rather than on the terms and conditions of official financial packages where subsidies can sway purchase decisions," the Treasury said.

"The agreement is drafted in such a way as to allow other countries that may in the future become big civil aircraft exporters, such as Russia and China, to join it if they wish." It should also facilitate the resolution of trade conflicts between Brazil and Canada, two leading producers of smaller short-haul aircraft for which the market is highly competitive, an OECD spokesman said.

Countries that have signed the agreement include Australia, Brazil, Canada, Japan, South Korea, New Zealand, Norway, Switzerland, the U.S. and the EU, representing the 27 European Union states.

The new agreement does not apply to the current battle between the U.S. and the EU over allegations of illicit subsidies to their respective aircraft giants, Boeing and Airbus, since October 2004, after a gentleman's agreement on the issue broke down.