The United States and European Union are set to lock horns again over aircraft subsidies in the latest round of a record trade dispute involving Airbus and Boeing .
The United States will tell the World Trade Organization (WTO) on Wednesday that European governments have failed to obey demands to withdraw unfair subsidies for passenger jets, a U.S. source familiar with the case said.
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The EU will defend its record in scrapping past subsidies while insisting that funding for the A350, due to make a maiden flight in June, is both fair and beyond the scope of the case.
Both sides have already won partial victories in the world's largest trade dispute, a nine-year legal quagmire.
Trade analysts say that in the absence of a negotiated settlement, the dispute could ultimately lead to billions of dollars of transatlantic sanctions and set the tone for competition with new market entrants such as China.
Wednesday's hearing, to be held in private but recorded for partial release later, will mark the first time both sides have been able to speak to each other in a compliance procedure stemming from a WTO ruling against government loans for Airbus.
Sources familiar with the case say sparks may fly as U.S. officials zero in on recent European statements that Airbus parent EADS is reshaping itself as a "normal" company, with a diminishing place for state influence.
Chief Executive Tom Enders has said a new structure limiting the powers of France and Germany has bolstered the independence of Europe's largest aerospace group, created in 2000.
U.S. sources say that sounds hollow in view of subsidies for the A350 that they say have continued unabated.
Boeing Chief Executive Jim McNerney has said the ownership changes would move EADS "a little closer" to normality, but Boeing continues to target its funding methods.
"It's highly ironic that at the time EADS is seeking to reduce government influence and become a normal company, it continues to seek billions of dollars of illegal government subsidies," said Boeing spokesman Charlie Miller.
The European Union says it has reversed any effect from past subsidies tied up in European government loans and has called on the United States to comply with parallel WTO rulings against federal and other support for Boeing.
"We are as normal as Boeing with the difference that their government-funded grants have been judged by the WTO panel as totally WTO-incompatible while our loan funding has been seen as okay in principle," said EADS chief spokesman Rainer Ohler.
Airbus typically receives loans from its founder nations: Britain, France, Germany and Spain. Boeing says the loans are a form of subsidy. Airbus says they are allowed at market rates.
Among the biggest clashes, with repercussions for current developments, is a legally complex debate about whether Boeing can widen the original case to include funding for the A350.
While battling the U.S. in Geneva, where the WTO is based, Airbus faces a dispute over the same A350 loans in Germany.
Berlin has withheld an estimated 600 million euro ($800 million) tranche, or half Germany's anticipated A350 loan, as it seeks assurances over the location of work for the next generation of planes, sources familiar with the talks say.
(Editing by Louise Ireland)