The European Union yesterday accused the US of violating the terms of their 12-year-old agreement on subsidies to aircraft makers by seeking to scrap it, intensifying the transatlantic trade battle over aid to Airbus and Boeing.

The US on Wednesday triggered the largest trade dispute in the history of the World Trade Organisation when it filed a complaint against subsidies granted to Airbus. This led to an immediate reciprocal filing by the European Commission, the EU executive, against aid to Boeing.

As well as its WTO filing, the US announced it would terminate the 1992 bilateral agreement at the heart of the dispute. Brussels yesterday deemed this to be invalid because the US first needed to demonstrate the EU had violated the terms of the agreement. The dispute is generating uncertainty for the two competitors and for a host of suppliers and customers to the airline industry.

The office of Mr Pascal Lamy, the EU Trade Commissioner, said the union had written to Washington to say that it considered the agreement still to be in force. Brussels requested talks before Washington made any decision on subsidies for Boeing's planned 7E7 long-range aircraft.

"We have a feeling that this \ may be a way for them to escape from the disciplines in the 1992 agreement," Mr Lamy's office said.

The office of Mr Richard Zoellick, US trade representative, rejected the idea that Washington's move violated the terms of the agreement, devised as a non-aggression pact after previous trade litigation over Airbus subsidies.

"The 1992 agreement provides that each party can terminate the agreement if either is not in compliance," it said. "We have gone to the WTO, which is the very definition of multilateralism, and it is difficult to see how this could be criticised as unilateralism."

This latest twist suggests both sides will continue to turn up the heat and strengthen their accusations, while entering into consultations before the WTO. - (Financial Times Service)