The European Union and the United States are taking their argument over billions of pounds of state aid given to rival aircraft makers, Airbus and Boeing, to the World Trade Organisation in what threatens to be the most bitter and expensive battle in the organisation’s history.

Less than 24 hours after Washington triggered a formal complaint against Airbus, the European Commission confirmed yesterday that it was filing a counter case to challenge the legality of the subsidies given to Boeing.

Peter Mandelson, the EU Trade Commissioner, said that he regretted the US action and would have preferred negotiations instead of the sharp escalation in the latest transatlantic row. “This has sparked off probably the biggest, most difficult and costly legal dispute in the WTO’s history,” he said.

The outbreak of hostilities has signalled the failure of four months of talks to find a settlement on subsidies to the world’s two largest aircraft companies.

In a last-minute attempt to avoid the potentially damaging legal action, Mr Mandelson had offered to reduce initial aid to the new A350 by 30 per cent, provided this was matched by a similar concession from Boeing.

“But there was no appetite for compromise in Washington,” he said, saying that he was “disappointed, but not surprised” by the US reaction.

In response to the European counter move, a senior US trade official said that the United States remained open to negotiating a bilateral deal that would phase out government subsidies for large civilian aircraft on both sides of the Atlantic, even while the cases proceeded at the World Trade Organisation.

“We prefer a negotiated outcome, but since some European member states are clearly moving to grant launch aid [government loans], our hand has been forced,” the official said.

The US Administration has said that it felt forced to act by the prospect of four European countries — the UK, France, Germany and Spain — committing some $1.7 billion (£835 million) in new launch aid to Airbus. It said yesterday that Airbus’s launch aid contravened WTO rules on subsidies and countervailing measures, but refused to disclose its legal arguments.

Mr Mandelson blamed Boeing for the aggressive US approach and said that it had received $31 billion to support its commercial aircraft programmes, from sources including NASA, the Department of Defense and US Foreign Sales Corporation tax breaks.

A senior US trade official denied that Boeing had spurred the action and said that he did not understand how Mr Mandelson came to his figures. “I don’t know how he got them. They don’t accord with our calcuations,” he said.

Mr Mandelson said that that the dispute should not prevent the EU and US from working together to make the Doha Round of multilateral trade negotiations a success. "I do not want to see the atmosphere in the WTO soured by this. Rob Portman [US Trade Representative] and I have shown we can work together. Everything that is wrapped up in the Doha Round is infinitely more important that what is essentially a grudge fight between two aircraft companies for a share of the global market which is big enough for each of them, ” he said.

The US trade official agreed: “We intend to deal with this dispute separately. That is exactly why we feel it is important to take it to the WTO’s dispute settlement procedure.”

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