Abu Dhabi, UAEMonday 28 September 2020

US wins $7.5bn sanctions battle with EU over aircraft subsidies

WTO gives the green light for the imposition of the biggest ever package of tariff sanctions on the European trade bloc

An Airbus A380 takes off at an airshow in Paris. The World Trade Organisation says the US can impose tariffs on up to $7.5 billion worth of goods from the European Union in retaliation for illegal subsidies given to Airbus to help build the A380. AP Photo.
An Airbus A380 takes off at an airshow in Paris. The World Trade Organisation says the US can impose tariffs on up to $7.5 billion worth of goods from the European Union in retaliation for illegal subsidies given to Airbus to help build the A380. AP Photo.

The World Trade Organisation gave President Donald Trump the go-ahead to impose tariffs on as much as $7.5 billion worth of European exports annually in retaliation for illegal government aid to Airbus.

The award is the largest in WTO history — nearly twice as large as the previous record of $4.04bn set in 2002.

The ruling on Wednesday is a milestone in the WTO’s longest-running dispute that will further test transatlantic relations, which have deteriorated under Trump’s “America First” approach to international ties. It’s also an example of Trump getting a favourable ruling from an organisation he has threatened to pull out of.

The US is already in a trade war with China, and any wider flare-up of tit-for-tat tariffs with Europe could threaten a fragile global economy. The WTO on Tuesday cut its trade growth forecast for this year to the weakest level in a decade, warning against a “destructive cycle of recrimination”.

Boeing shares extended declines on the news amid a broad retreat for US stocks, dropping 2.8 per cent to $364.35 at 11:56am in New York. Airbus briefly reversed an earlier slide before closing down 2 per cent to €114.36 in Paris.

The decision is one of the final hurdles before the US can announce which products from the European Union it will target with tariffs selected from an initial list that includes:

  • Airbus planes and parts
  • Wine and spirits produced by LVMH, Remy Cointreau, Pernod Ricard and Diageo
  • Leather goods manufactured by Christian Dior and Hermes International

The new tariffs can take effect after the WTO adopts the report, which is expected to happen at a meeting in Geneva this month.

The Trump administration is considering a particularly damaging trade weapon known as “carousel” retaliation, which would enable the US to regularly shift around the targeted goods, people familiar with the deliberations said last month. That would increase trade uncertainty and pain for European businesses.

The EU will retaliate against any Airbus-linked tariffs when the WTO rules early next year on the bloc’s dispute over US subsidies to Boeing, according to European Trade Commissioner Cecilia Malmstrom.

“The mutual imposition of countermeasures, however, would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time,” Malmstrom said, adding that the bloc is ready to work with the US on a “fair and balanced solution for our respective aircraft industries”.

Airbus warned in a statement that tariffs on its aircraft and components would come as a blow to the US aerospace industry, with some 40 per cent of its procurement coming from American suppliers.

The company also urged the Trump administration to take account of the forthcoming WTO decision on Boeing, saying those reciprocal tariffs could exceed the value of the US sanctions. Chief executive Guillaume Faury repeated calls for a negotiated settlement to the dispute.

The WTO has repeatedly ruled that Airbus, which is based in the French city of Toulouse, unfairly benefited from launch aid loans and other trade-distorting subsidies for two Airbus models, the A380 and A350WXB.

“Europe is facing tariffs today because Airbus has refused for years to comply with WTO rulings,” Boeing said in an email. “Unfortunately, Airbus’s non-compliance will negatively impact European Member States, industries, and businesses completely unrelated to Airbus’s actions, as well as Airbus’s airline customers.”

The Trump administration wants to see an end to the EU subsidies in question, which Boeing and the US claim give Airbus an unfair advantage in the highly-competitive international passenger aircraft market.

French Finance Minister Bruno Le Maire says the best solution would be one that lowers tensions, but warned that EU would respond “firmly” if the US imposes tariffs.

“If the US chooses to impose sanctions, it would be an economic and political error,” he said.

Updated: October 2, 2019 09:07 PM

Editor's Picks
THE DAILY NEWSLETTER
Sign up to our daily email
Most Read