The United States is expected to be granted approval by the World Trade Organization (WTO) to impose tariffs on European Union (EU) goods, including aircraft and parts, worth up to $8 billion annually, media reports suggest. The decision would open the next chapter in what has been a 15-year-old aircraft subsidy dispute concerning rival plane makers Boeing and Airbus, in which both the U.S. and the EU have their own separate cases before the WTO.
Arbitrators from the Dispute Settlement Body (DSB) of the global trade watchdog held a meeting in Geneva, Switzerland, on September 30, 2019, to consider measures affecting the dispute over trade of large civil aircraft. The WTO decision concerns the case filed by the United States against the EU and certain EU member States addressing the alleged EU subsidies on large civil aircraft. It is expected the WTO will back the U.S. complaint, granting it the right to impose tariffs on billions of dollars of European goods, as several media reports suggest.
The Office of the United States Trade Representative (USTR) brought forward a proposal on July 1, 2019, specifying new tariffs on EU goods worth approximately $4 billion in commercial value. The wide-ranging list of 89 products could be added to the preliminary proposal that the USRT published on April 12, 2019, concerning EU exports to the U.S. – from food, drink and other items to European-built aircraft and aerospace parts – that would be subject to tariffs worth around $21 billion in annual trade value.
The Trump administration has, in fact, requested to impose tariffs of up to 100% on European exports to the U.S. with a trade value of around $11.2 billion a year, according to a recent report by CNBC. If the favorable ruling were to be confirmed, the WTO would set the amount of European products that the U.S. can target, once it selects the items from the published USTR list.
Most likely not reaching the desired tariff figure, according to sources cited by Reuters, the U.S. could be, however, awarded the right to slap tariffs worth around $7.5 billion annually, a record sum in the history of the WTO, as the news agency points out. Other news media, including Bloomberg, put that figure at $8 billion.
The impact on Airbus
The proposed list threatens the sustainability of Airbus’ U.S.-based operations, such as the A320 manufacturing facility in Mobile, Alabama, which depends on imported components to build the aircraft. Airbus is also constructing a second assembly line at its Mobile plant, where the first few A220s are already being produced.
The European plane maker states it has purchased $48 billion of components and materials from U.S. suppliers in the last three years since 2019 and sources about 40% of parts from the U.S. across its model range. However, aircraft produced at Mobile are also constructed from sub-assemblies shipped from Europe, particularly, France, Germany, Spain and the UK, the four EU member States being cited in the WTO case.
Airbus CEO Guillaume Faury states the escalating dispute is threatening to damage both parties. “A trade war on aviation would be a lose-lose game because the supply chains are very integrated,” he was quoted as saying in a report by Bloomberg. “We buy a lot in the U.S., we sell in the U.S. and we are a U.S. player as well.”
The rift that keeps on giving
While there are suggestions that the U.S. is poised to win its case before the WTO, likely imposing the duties on EU goods as soon as October 2019, the EU is certainly expected to retaliate, as it pursues its own similar case at the WTO over illegal subsidies allegedly provided to Boeing by the U.S. On April 17, 2019, the European Commission published a preliminary list of U.S. goods (including aircraft, chemicals and food products) it would seek to hit with tariffs. The list would amount to $20 billion of U.S. exports to the EU. A decision by WTO arbitrators on the appropriate level of countermeasures tariffs in that case is expected in 2020.
The WTO has ruled that both Airbus and Boeing received illegal subsidies: the EU was found to have unfairly supported the development of two Airbus programs, the late A380 and the A350, while Boeing is said to have received unjustified tax breaks from the U.S. authorities. Both manufacturers estimate that the subsidies harmed their business by more than $10 billion per year.