EU plans for own retaliation in aircraft dispute with U.S.

By Philip Blenkinsop and Tim Hepher

* Europeans say scale of U.S. measures "greatly exaggerated"

* French minister warns world can't afford trade dispute

* European aviation shares come under pressure

By Philip Blenkinsop and Tim Hepher

BRUSSELS/PARIS, April 9 (Reuters) - The European Union has begun preparations to retaliate over Boeing subsidies, an EU official said on Tuesday, a day after Washington listed EU products it plans to hit with tariffs in their aircraft dispute.

The U.S. Trade Representative https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/april/ustr-proposes-products-tariff on Monday proposed a range of EU products ranging from large commercial aircraft and parts to dairy products and wine to target as retaliation for subsidies given to Airbus.

A European Commission source said on Tuesday the level of proposed U.S. countermeasures was "greatly exaggerated," adding the amount of retaliation could only be determined by a World Trade Organization arbitrator. "In the parallel Boeing dispute, the determination of EU retaliation rights is also coming closer and the EU will request the WTO-appointed arbitrator to determine the EU's retaliation rights," the Commision source said, adding the Commission was preparing so that it could take action after the arbitrator's decision.

Airbus said it saw no legal basis for the U.S. move and warned of deepening transatlantic trade tensions.

The European Union is already facing U.S. tariffs on its steel and aluminum exports and U.S. President Donald Trump has repeatedly threatened to hit EU cars with punitive duties.

French Finance Minister Bruno Le Maire told a conference in Paris that the two sides needed to reach a friendly agreement.

"When I see the situation global growth is in, I don't think we can afford to have a trade conflict even if only on the specific issues of the aircraft industry in the United States and Europe," he said.

The two sides are closing in on the climax of a record subsidy dispute that has been grinding its way through the WTO for almost 15 years.

Both sides have won partial victories in claiming Airbus and Boeing received unlawful subsidies but disagree on the amount involved and whether each has complied with earlier WTO rulings.

MORE TIT-FOR-TAT?

The U.S. tariffs proposal put pressure on shares in European makers of aircraft and aerospace suppliers, wine, cheese and luxury goods.

At 0950 GMT, Airbus shares were down 1.6 percent. Airbus suppliers such as Safran and Leonardo lost between 1.0 percent and 1.2 percent. MTU Aero Engines was 2.5 percent weaker and Rolls-Royce down 1.3 percent.

"Get ready for more tit-for-tat scrapping to follow," said John Woolfitt of London brokerage Atlantic Markets.

The WTO ruled last year that the European Union had failed to remove illegal subsidies for two airplane programs, the A350 and the A380.

The two sides are now in arbitration to decide the size of any countermeasures.

Airbus said it had taken measures to comply with the "relatively minor" elements outstanding regarding subsidies it had received.

German engineering lobby group the VDMA, which represents major exporters, said the European Union should swiftly move to negotiate a free trade agreement with the United States.

"Punitive tariffs are no solution to the problem; they only lead to a spiraling isolation," Ulrich Ackermann, the VDMA's head of foreign trade, said in a statement.

Germany is particularly apprehensive of possible U.S. tariffs on car imports. The United States is a major market for Volkswagen, Mercedes maker Daimler and BMW.

Moody's said on Tuesday potential U.S. tariffs on imported autos and parts represented a significant risk to global growth and would hinder economic momentum in Germany, Japan and Korea. (Reporting by Philip Blenkinsop; additional reporting by Tim Hepher, Richard Lough and Leigh Thomas in Paris, Helen Reid, Thyagaraju Adinarayan and Georgina Prodhan in London Editing by Keith Weir )