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THE MORNING BRIEF
April 11, 2005 -- 6:32 a.m. EDT
When it comes to Airbus and Boeing, the U.S. and EU seem to be in agreement on just one thing: Keep the showdown over irreconcilable differences as quiet as possible.
Deadline Passing, EU and U.S.
Are in Aircraft-Aid Stalemate
By JOSEPH SCHUMAN
THE WALL STREET JOURNAL ONLINE
When it comes to Airbus and Boeing, the U.S. and European Union seem to be in agreement on just one thing after last week's rhetorical scrap: Keep the showdown over irreconcilable differences as quiet as possible.
Today is the self-imposed deadline following a 90-day "cooling off" period in which Brussels and Washington tried to work things out before taking their arguments to the World Trade Organization. And while the two sides seem no closer than they did in January, neither shows an inclination to file papers with the WTO. Over the weekend, European trade chief Peter Mandelson took pains to say the EU would hold off on any Airbus-related decisions to give negotiations more time - essentially delaying consideration of launch aid for the A350, the Financial Times reports. This was a reversal from Mr. Mandelson's ad hominem exchanges last week with Robert Zoellick, the former U.S. trade representative and now deputy secretary of state who is still handling the matter. But the negotiators remain so divided over the issue of government subsidies to the aircraft manufacturers that they have been unable even to agree on what should be on the table, The Wall Street Journal reports.
There are three main points of disagreement in this trans-Atlantic trade dispute, which has been boiling for years, the Journal explains. First, each time Airbus decides to launch a new plane program, it receives as much as a third of the development costs from the governments of France, Germany, Spain and Britain - loans that need only be completely repaid if the new model becomes a commercial success. The U.S. says these loans should come out to $35 billion in government debt on Airbus's books, not the roughly $6.6 billion it lists. Second, the Europeans say the U.S. has funneled more than $23 billion to Boeing since 1992 through civilian and military research-and-development funding, on top of substantial R&D benefits from NASA. Third, the EU takes issue with Washington State tax breaks related to development of Boeing's next-generation 787 Dreamliner, and more than $1 billion in loans from the Japanese government to companies there that are working on the 787.
The A350 is set to be a competitor to the 787, the FT notes, and if the U.S. rejects Mr. Mandelson's offer and goes to the WTO, the dispute probably wouldn't be resolved before Airbus gets the money. Boeing's only hope in that case would rest on a WTO ruling that could discourage U.S. airlines from buying the A350 out of fears they could be hit by potential American sanctions. On a day when the whole issue remains up in the air, Boeing can take solace with some other news: Korean Air Lines said it has signed a deal with Boeing for up to 20 787s, a deal that the Seattle Post-Intelligencer says would be worth about $2.6 billion at list prices.
Greenberg Likely to Plead the Fifth
Maurice R. "Hank" Greenberg is likely to invoke his Fifth Amendment rights against self-incrimination after New York Attorney General Eliot Spitzer refused to postpone tomorrow's scheduled deposition of the ousted chief executive and chairman of American International Group, people familiar with the matter tell The Wall Street Journal. This was the second time Mr. Spitzer declined to postpone the testimony -- the first, last month, prompted AIG's board to push Mr. Greenberg out as CEO. "Over the weekend, Mr. Greenberg was torn over whether to refuse to testify on the grounds that his answers might be self-incriminating, because he wanted to explain his side of the story and was worried invoking the Fifth Amendment would harm his reputation," the Journal says. His lawyers, however, fearing Mr. Greenberg could be charged with perjury if investigators find evidence contradicting him, strongly urged the ex-AIG chief to refuse to answer questions, the people familiar with the matter say.
The New York Times, citing a person close to the inquiry, says the wider the scope of the questions, the more likely it will be that Mr. Greenberg will invoke his Fifth Amendment rights. In a television interview yesterday, Mr. Spitzer said he had strong evidence that Mr. Greenberg committed fraud in initiating a deal that AIG had with Berkshire Hathaway unit General Re -- a deal at the heart of the inquiries. "That company was a black box, run with an iron fist by a CEO who did not tell the public the truth," Mr. Spitzer said. One of the starkest illustrations of Mr. Greenberg's power at AIG was his unfettered control of C.V. Starr and Starr International, two entities that significantly controlled the compensation of AIG executives, and which the Journal describes in detail as "an extraordinary anomaly in the annals of American business: large shareholders intimately involved in the executive compensation and operations of the world's largest business-insurance company, operating entirely outside its corporate structure."
Ahead of Mr. Greenberg's testimony tomorrow, Mr. Spitzer today will interview Warren Buffett, the chief executive of Berkshire and an icon of investing America whose reputation was unbesmirched until the current inquiries. Mr. Buffett, investigators have said, is being called as a witness rather than a target of the probes. The Journal reported Friday that it was Mr. Buffett, in a bid to win leniency for Berkshire from prosecutors in an unrelated case, who directed lawyers to turn over the documents describing the suspect transaction between General Re and AIG. And the Journal notes that while AIG last month ousted executives behind the suspect deal with General Re, Berkshire has kept two top executives who worked on the deal with the company.
Inflation Outpacing U.S. Wage Growth
The growth in U.S. wages last year and during the first two months of 2005 trailed inflation, compounding the squeeze from higher housing, energy and other costs and meaning that for the first time in 14 years, the American work force has in effect gotten an across-the-board pay cut, the Los Angeles Times says. Though salary growth has been relatively sluggish since the 2001 downturn, inflation also had stayed relatively subdued until last year, when the consumer price index rose 2.7%. But wages rose only 2.5%. "The effective 0.2-percentage-point erosion in workers' living standards occurred while the economy expanded at a healthy 4%, better than the 3% historical average," the paper says. "Meanwhile, corporate profits hit record highs as companies got more productivity out of workers while keeping pay increases down."
Credit-Card Practices Under Fire
Pressure is mounting to clean up credit-card marketing practices that critics say trap consumers in snowballing debt, American Banker reports. With record levels of revolving loans -- $803 billion worth as of April 7 -- and nearly five billion card applications mailed each year, the issue has drawn the attention of U.S. regulators, and some lawmakers and consumer advocates are itching for reforms. The "current state of affairs breeds understandable frustration and cynicism among consumers." Julie L. Williams, the acting comptroller of the currency, said in a speech in January. Former Comptroller John D. Hawke Jr. admonished bankers last fall to come up with a solution before Congress or the agencies do it for them. "Even some of our most respectable banks engage in some business practices that, if not currently illegal, seem quite readily to be susceptible of being considered inappropriate," he said.
Rivalry, Collaboration of Asian Giants
Chinese Premier Wen Jiabao, on a four-day trip to India, called for more collaboration between the two sometimes enemies to put them at the forefront of global technology industries, The Wall Street Journal reports. Specifically, he called on more Indian information-technology companies to set up operations in China. Mr. Wen, at his first stop in the Indian high-tech capital of Bangalore, pointed out that China's focus on hardware and India's on software make them well-suited for collaboration as well as competition. Today, in New Delhi, Mr. Wen said the two countries will sign an accord aimed at resolving a boundary dispute that has bedeviled relations between the Asian giants for more than four decades and once led to war, the Times of India reports.
New York Times: The Internal Revenue Service audits tax returns of nearly every large company in manufacturing, mining, heavy construction and agriculture, but just a fifth of big banks, insurance companies and brokerage firms, many of which have been central to the proliferation of aggressive tax shelters.
Washington Post: About 29% of African Americans who bought or refinanced homes last year ended up with high-cost loans, compared with only about 10% of white Americans, according to a consumer advocacy group's analysis of new data from 15 large national lenders.
Los Angeles Times: The risk of a strike looms over United Airlines as it tries to emerge from 2 1/2 years in bankruptcy protection, with two unions threatening to walk off the job if the airline persuades a U.S. Bankruptcy Court judge to annul their contracts and impose more wage and benefit cuts.
Wall Street Journal: Large anti-Japanese protests in China are making the authoritarian Chinese government perform a balancing act: Beijing agrees with the public emotions being vented but knows it risks wider unrest and greater friction with its economically important neighbor.
Sports Illustrated: The major drought is over for Tiger Woods, who earned his fourth green jacket at the Masters in a thrilling playoff duel over Chris DiMarco, who now owns the title of Best Player Never to Win a Major.
Quote of the Day
"Being scared is realistic. ... You must always respect the virus and the situation you're in," said Dr. Gail Thomson, a British physician working for the World Health Organization in Angola, where the Ebola-like Marburg virus has killed 193 people in an outbreak thought to have begun in October. At least a dozen of the victims have been health-care workers, the New York Times reports.
TODAY'S MARKETS
The Dow industrials, burdened by hefty losses at AIG and GM, finished down 84.98 points at 10461.34, snapping a four-day winning streak. Analysts, though, were upbeat about stocks.
http://online.wsj.com/article/0,,SB1112958...tml?mod=djemTMBTwo obscure entities -- C.V. Starr and Starr International -- served as private honey pots for AIG to reward highly regarded executives -- and were effectively the private instrument used by Greenberg to wield power.
http://online.wsj.com/article/0,,SB1113184...tml?mod=djemTMBThe Bush administration's Middle East Partnership Initiative has notched some remarkable successes like free elections in Iraq, but the democracy drive is also causing unease among a host of American allies in the region.
http://online.wsj.com/article/0,,SB1113175...tml?mod=djemTMBA spacecraft designed to withstand re-entry into the Earth's atmosphere is now slowly cracking up under the stress and strain of a very down-to-earth struggle between the Moscow company that made it and a Singapore concern that says it bought it.
http://online.wsj.com/article/0,,SB1113179...tml?mod=djemTMBA price war is bringing down the cost of online investing, a boon for consumers. But in its wake are the bruised shares of discount brokerage firms.
http://online.wsj.com/article/0,,SB1113184...tml?mod=djemTMBApple faces a new challenge from cellphone makers and wireless carriers who are piling into mobile music with an array of new services and phones.
http://online.wsj.com/article/0,,SB1113174...tml?mod=djemTMBWhile U.S. textile producers are fighting to keep jobs on American soil, some are setting up manufacturing facilities in China, the country likely to dominate garment production now that global garment quotas have ended.
http://online.wsj.com/article/0,,SB1113177...tml?mod=djemTMBAd campaigns on topics that are typically fodder only for political junkies glued to C-SPAN are making the leap to mainstream television.
http://online.wsj.com/article/0,,SB1113181...tml?mod=djemTMBGM has done an about-face on the importance of hybrid gas-electric vehicles, if comments by Bob Lutz during a recent "quiz show" are any guide.
http://online.wsj.com/article/0,,SB1112970...tml?mod=djemTMB