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To Counter China, U.S. And EU Officials Suspend Boeing-Airbus Dispute

STEVE INSKEEP, HOST:

The United States and the European Union called a truce in a trade war. It was a 17-year-old dispute between the U.S. aircraft maker Boeing and its European competitor, Airbus. The fight over subsidies to plane manufacturers led to tariffs or taxes that then expanded to include tariffs on wine, cheese, tractors, bourbon. Makes perfect sense, right? Well, the two sides finally realized that they needed to unite against a bigger threat. NPR's Jackie Northam reports.

JACKIE NORTHAM, BYLINE: The agreement means the U.S. and the EU can move on from recriminations and litigation to banding together against a common threat. U.S. Trade Representative Katherine Tai was clear what was behind the breakthrough in one of the longest running cases in the history of the World Trade Organization.

KATHERINE TAI: We agreed to work together to challenge and counter China's nonmarket practices in the sector in specific ways that reflect our standards for fair competition.

NORTHAM: And the airline sector is a critical industry in the U.S.

TAI: The aerospace sector employees over 500,000 workers directly and supports over 700,000 jobs in related industries.

NORTHAM: And to preserve those jobs, the U.S. needs to be selling to China. James McGregor is with the consultancy APCO Worldwide and has been in China for 30 years.

JAMES MCGREGOR: They're building fantastic new airports across the country constantly, more and more air travel. I mean, if you look at the numbers, if you're not selling airplanes to China, you're not going to be selling airplanes in the next few decades. So, you know, both Airbus and Boeing want to be there in a big way.

NORTHAM: And that could give China a lot of sway with the two giants in the aircraft industry, says Richard Aboulafia with the Teal Group, an aerospace and defense consultancy.

RICHARD ABOULAFIA: I think the concern is that China begins to play off the two sides against each other. You know, if we don't like what you're doing, either politically or economically, we're going to favor the other guy. And it's important for the U.S. and its allies to be on the same page to prevent this from happening.

NORTHAM: At the same time, China is also trying to develop its own large passenger aircraft to rival Airbus and Boeing and smaller aircraft for short hops around the country. Aboulafia says the development is heavily subsidized by the government. Despite that, China's efforts pose no immediate threat to Boeing or Airbus.

ABOULAFIA: They're producing some pretty mediocre designs that really have no place in the world export market. And not only that, these aircraft are heavily dependent upon U.S. engines, Western avionics, all Western systems. Basically, they're kind of almost Potemkin aircraft, you know, just a facade.

NORTHAM: McGregor with APCO Worldwide says this new truce between Boeing and Airbus goes far beyond curbing China's airline industry. He says it helps address unfair trade practices, which give Chinese companies an advantage, things like state subsidies, flooding a market with cheap products and knocking out entire industries. McGregor says, given that, Europe and America don't need to be fighting with each other.

MCGREGOR: This trade dispute was minor compared to the threat and challenges China presents to both Europe and America. So by taking this off the table, it changes the conversation of how do we work together to preserve our existing system?

NORTHAM: That's if the truce between Boeing and Airbus holds. Both sides will be watching to make sure the other doesn't cross a line when it comes to military contracts or subsidies to help prop up their companies - the very same thing they complain about when it comes to China. Jackie Northam, NPR News.

(SOUNDBITE OF SEAS OF YEARS' "MESOPELAGIC TRANSMISSIONS") Transcript provided by NPR, Copyright NPR.