Calls are mounting in the US to take legal action against Airbus for receiving subsidies.
Timing is key. Lamy steps down at the end of October from his post. US elections take place a few days later and the Airbus dispute has boiled into a major campaign issue. Democrats have seized the chance to paint the Bush administration neglecting US worker interests. One Brussels participant in the talks has said the European aircraft maker will be bashed "so Bush can show he is standing up for American workers."
Over the past four years, Zoellick and Lamy have managed to avoid politicizing most trade disputes. They managed instead to agree cuts in farm payments to revive global trade talks at the World Trade Organization. They continued their dialogue even when US-EU. relations reached a low ebb over the war in Iraq. With Airbus, however, both the White House and Congress have become involved and senators in the committee that legislates on trade will grill Lamy during his two-day trip to Washington, DC.
"There will be a lot of pressure from Capitol Hill to resolve the issue of Airbus subsidies," said a senate aide close to the upcoming meetings.
"The role of the committee will be to exert political pressure to stop these payments."
The US objects to EU launch aid to Airbus, a rival of the ailing US-based Boeing Co. It says the European company is too successful to merit financial leg-ups. The EU says Airbus aid is legal and offset by tax breaks and other indirect aid to Boeing.
During his US trip, Lamy met with Zoellick. He also met with senators Chuck Grassley, Republican chairman of the Senate Finance Committee; Carl Levin, a Democrat, member of the House of Representatives and member of the subcommittee on trade; the Democrat Max Baucus, who sits on the Senate Committee on Finance and Bill Thomas, Republican chairman of the House Ways and Means Committee.
The EU won't cave to US pressure, say Lamy aides.
"Lamy is not going there with a package of concessions," said spokeswoman Arancha Gonzalez.
If politics prevail, it will mark a sour end to a period in US-EU trade relations marked by strong collaboration between Lamy and Zoellick.
"They have a great personal affinity for each other. That's allowed them to achieve a lot," said Laurent Ruessmann, trade lawyer for the international legal firm Sidley Austin Brown & Wood.
Yet while Lamy faces pressure from senators, he is also traveling to press his own demands upon Congress. One is the repeal of the Byrd Amendment - a US law whereby Washington hands money to domestic companies that it has collected in fines from foreign rivals accused of selling their exports below market cost. The WTO recently ruled the clause illegal. Lamy will press members of Congress to repeal it or face sanctions, but insiders say he won't succeed.
"Everyone understands the Byrd Amendment has to be modified," said a person close to the talks, speaking from Washington. "But that won't happen this year. Politically no one can repeal it now, given the importance the amendment has in Pennsylvania and Ohio."
As Lamy leaves office, he will lay the ground for his successor, Peter Mandelson. Lamy will press Congress to repeal the foreign sales corporation tax, which the WTO has ruled illegal. He will also launch discussions, which will continue at world trade talks, to cut industrial tariffs and barriers to trade in services. For all the EU farm payments Lamy has vowed to cut, this is the area where his successor will be able to press for Europe's interests. (Dow Jones & Company, Inc.)
