The US and the EU yesterday toned down the rhetoric in their trade dispute over aircraft subsidies by insisting they would be willing to continue to negotiate rather than litigate before the World Trade Organisation (WTO).

After an acrimonious weekend spat, in which each side accused the other of breaking off the negotiations which started in January, trade officials said they would be willing to resume talks soon.

But they added that the negotiating positions taken by both sides remained some way apart.

The weekend tensions highlighted the difficulty of pursuing talks under an EU-US agreement made in January designed "to end subsidies to large civil aircraft producers".

However, Washington and Brussels are aware that the alternative scenario, of resorting to WTO dispute arbitration, could seriously strain the Geneva trade body and ultimately prove self- defeating for both sides.

Explaining the outburst over the weekend, officials familiar with the US view said that the EU appeared to have had second thoughts about its step-by-step approach to the negotiations since making the January agreement.

In particular, the EU had backtracked by dragging in the issue of subsidies to Boeing's Japanese suppliers despite the January agreement to deal with bilateral EU-US issues, they said.

Richard Mills, spokesman for the US trade representative, yesterday denied that the talks had completely broken down and said the US was prepared to continue negotiating on the basis originally agreed.

"We are still at the table and, in fact, have never left the table," he said.

But the officials said that a commitment to end Airbus launch aid early in the process, and to leave the issue of Japanese subsidies until much later, were the prerequisites for the US being able to reach a deal with the Europeans.

Brussels yesterday offered the US an olive branch by stressing that it would not force Japan into the negotiations before reaching a bilateral deal with the US, even though Japan's role in the development of Boeing's new 787 aircraft has been among the key European grievances about indirect support for Boeing.

However, a spokeswoman for Peter Mandelson, the EU's trade commissioner, also insisted that the EU would defend the launch aid granted to Airbus until it was satisfied that the US offer included a comparable set of concessions.

Speaking to reporters in Moscow yesterday, Mr Mandelson said: "The ball is in America's court. I'm looking for clarification of the US position."

Mr Mandelson is due to brief fellow European commissioners today about the state of play in the negotiations.

In January the two sides gave themselves three months to reach a bilateral agreement - a deadline now unlikely to be met. - (Financial Times Service)