Incoming European Union trade chief Mr Peter Mandelson said yesterday he was confident the EU would have a strong counter-case if the United States brought a claim to the World Trade Organization over aircraft subsidies.

"If the worst comes to the worst and the case is taken to the WTO, I am very confident indeed of the EU's position and of the counter-case," Mr Mandelson told a news conference.

The two sides are in talks about revising an agreement which governs state aid given to Boeing and Airbus. The United States has threatened to go to the WTO if loans to Airbus by European governments are not stopped.

"Under terms of the original agreement, there is a provision for regular discussion to iron out disputes or conflicting analysis between the US and the EU, and I think those discussions should have come first before threats of action," Mr Mandelson said.

Some EU officials believe the US threat of WTO action made is a political move in a presidential election year. The EU says it will bring a case to the WTO if the United States does.

Earlier a report by Bloomberg News quoted a European Commission memo as saying there would be "mutually assured embarrassment" if a case went to the WTO because Boeing and Airbus would both probably see their state aid ruled illegal.