EU given green light to hit US with tariffs in Airbus-Boeing ruling

Brussels calls for final settlement to 16-year aircraft dispute

The World Trade Organisation has given the European Union permission to impose tariffs on $4 billion worth of American products annually in retaliation for illegal subsidies given to US plane maker Boeing. Photograph: Lindsey Wasson/The New York Times

The World Trade Organisation has given the European Union permission to impose tariffs on $4 billion worth of American products annually in retaliation for illegal subsidies given to US plane maker Boeing. Photograph: Lindsey Wasson/The New York Times

 

The EU has been handed the right to hit almost $4 billion (€3.4 billion)-worth of US goods with punitive tariffs in retaliation for illegal state aid to Boeing, leading Brussels to ramp up calls for a final settlement to the two sides’ 16-year aircraft dispute.

The World Trade Organisation announced the decision on Tuesday. The EU will now have to decide when to put the tariffs into practice.

The retaliation rights of $3.99 billion are less than the $7.5 billion the US received in a parallel case last year against Airbus, and also less than the $8.58 billion requested by the EU.

But Brussels has identified a wide range of US products that it could hit, including aircraft, fitness machines and blueberries.

Valdis Dombrovskis, the EU trade commissioner, said that the long-awaited decision should be the cue for the two sides to come together and agree subsidy rules for the airline sector.

“Our strong preference is for a negotiated settlement. Otherwise, we will be forced to defend our interests and respond in a proportionate way,” he added.

The transatlantic dispute over aircraft subsidies is one of the longest-running pieces of litigation in the WTO’s history, and reflects the economic importance and competitive pressure felt by manufacturers on both sides of the Atlantic.

The battle dates back to 2004, the year after Airbus overtook its US rival in terms of deliveries for the first time. After brokering an agreement with the EU on state aid in 1992, the US launched a case against subsidies to the European aerospace group dating back to the 1970s, initially claiming that $22bn in illegal funding had been given to Airbus.

The EU followed up a few months later with a challenge of its own, originally claiming $23 billion in illegal aid was offered to Boeing.

Brussels has been urging a settlement for months, as EU policymakers have grown increasingly exasperated by the time lag between a WTO decision last year on US rights to apply extra tariffs against EU products over Airbus and today’s announcement on Boeing.

In that time, the US has applied punitive tariffs to products ranging from French wine to Italian cheese, while the EU has not been able to unleash similar measures in return.

In response to the ruling from the WTO, the US trade representative’s office argued that the EU had “no legal basis” for imposing the tariffs as the subsidies in question were no longer being granted. USTR threatened to retaliate if the EU levied the tariffs.

Robert Lighthizer, the US trade representative, said the US remained “determined to find a resolution to this dispute that addresses the massive subsidies European governments have provided to Airbus and the harm to US aerospace workers and businesses”.

He added: “We are waiting for a response from the EU to a recent US proposal and will intensify our ongoing negotiations with the EU to restore fair competition and a level playing field to this sector.”

One of the key decisions for Mr Dombrovskis, who was confirmed in office only last week, will be whether any tariffs should kick in before the US election on November 3.

The EU trade commissioner said he “would much prefer” not to apply the tariffs against US goods, as “additional duties are not in the economic interest of either side”.

The EU still needs to request authorisation from the WTO to put the additional tariffs into practice - essentially a formality - something it could do at a meeting of the dispute-settlement body scheduled for October 26th.

The EU’s right to hit US products is based on WTO findings against aid granted to Boeing by Washington state - advantages that Boeing and the US government insist have now been withdrawn.

Officials at Airbus and Boeing told the FT that they were keen to see a settlement in a dispute that had become a costly distraction at a time when aircraft manufacturers were battling the devastation to their market from Covid-19. They also face a potential competitive threat from Chinese manufacturing, with Beijing aiming to bring its C919 single aisle into service next year.

“Rather than escalating this matter with threats to US businesses and their European customers, Airbus and the EU should be focusing their energies on good-faith efforts to resolve this long-running dispute,” Boeing said.

Attention in the US has been focused on the fact that the EU retaliatory tariffs include aircraft. These punitive duties would come at a critical time for Boeing as the company wants to have its 737 Max recertified following deadly crashes and a safety investigation.

Guillaume Faury, Airbus’s chief executive, said the company was “prepared and ready to support a negotiation process that leads to a fair settlement?.?.?.?it is time to find a solution now so that tariffs can be removed on both sides of the Atlantic”. - Copyright The Financial Times Limited 2020