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EU fails to block U.S. tariffs in new WTO aircraft ruling: sources

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PARIS/BRUSSELS (Reuters) - The World Trade Organization has found the EU has failed to withdraw all subsidies to planemaker Airbus, (AIR.PA) three people familiar with the matter said, a decision likely to permit the United States to maintain tariffs on European goods.

A new compliance report, to be published on Monday at 4 p.m. in Geneva (1500 GMT), found that the Airbus A350 jetliner continues to be subsidized as a result of earlier government loans, they said.

However, the WTO scaled back the amount of harm deemed to have been caused to U.S. rival Boeing (BA.N) by another Airbus plane, the A380 superjumbo, two of the people said. That could theoretically lead to a lowering of the $7.5 billion ceiling for tariffs on EU goods which the trade body has permitted under the dispute, though legal wrangling could put off any recalculation.

None of the parties in the 15-year-old trade case, which involves mutual claims of billions of dollars of subsidies to both planemakers, had any immediate comment.

The United States imposed tariffs on European goods including most Airbus planes and products from cheese to olives and single-malt whisky in October.

The $7.5 billion ceiling of damages approved by the WTO was based on the amount of economic damage believed to have been caused to Boeing as a result of European support to Airbus, mainly in the form of government loans for the A380 and A350.

The WTO overruled EU attempts to halt the tariffs while Brussels brought forward new arguments to show that it had complied with earlier rulings, in a somewhat rare second compliance procedure.

Monday’s report will deliver the WTO’s verdict on those new arguments, which rely partly on the fact the A380 - once the European planemaker’s flagship - is facing the axe because of poor sales, meaning any damage to Boeing was short-lived.

Two of the people familiar with the case said the WTO had accepted part of these arguments, ruling that the A380, the world’s largest airliner, was no longer causing lost sales to Boeing because Airbus is no longer marketing it.

However, it ruled that the A380 would continue to crimp Boeing’s potential market share - a process known as impedance - until production halts, which is scheduled in mid-2021.

If placed into effect immediately, the ruling means that the United States could see the ceiling for tariffs reduced to $5.5 billion from $7.5 billion, the people said.

In practice, however, even a partial European victory on that front is unlikely to translate into lower tariffs any time soon, due to legal technicalities and appeal procedures.

By appealing the new compliance finding, the United States could effectively send the case into a void as the WTO Appellate Body, which hears appeals, is about to cease functioning due to U.S. blocking of new appointments, experts said.

Instead, the EU is expected to focus on the prospect of counter-tariffs in a parallel case over Boeing subsidies likely to come to a head next spring, while calling for a broader negotiated settlement on aircraft support worldwide.

Reporting by Tim Hepher and Philip Blenkinsop; Editing by Edmund Blair and Peter Graff

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