Boeing Subsidies Merit EU Tariffs on $4 Billion in U.S. Goods, WTO Rules

Date: Wednesday, October 14, 2020
Source: The Wall Street Journal

The World Trade Organization said the European Union may impose tariffs on $3.99 billion in Boeing Co. jets and other U.S. goods annually as part of a long-running trade dispute.

Tuesday’s ruling clears the way for the EU to respond to tariffs that the trade body last October authorized the U.S. to impose on $7.5 billion in Airbus SE jets and other imported European products, the largest arbitration award in WTO history.

EU officials have said they hope to negotiate a settlement with the U.S., and many observers expect Europe to refrain from levying tariffs quickly. The bloc last year said it had prepared a preliminary list of U.S. products to target in retaliation, if necessary.

The jetliner dispute is the longest since the WTO’s inception. In 2004, the U.S. took European countries to the WTO over subsidies to Airbus, and Europe responded soon after with a case against U.S. support for Boeing.

WTO rulings since then have found that both sides provided prohibited subsidies, but Europe did so to a greater extent. Tuesday’s pronouncement ends years of suits and countersuits and leaves the two sides with the choice of negotiating a solution or fighting a protracted trade battle.

“The U.S. is in a strong position, since its award is almost twice the EU’s, but $4 billion is not to be sneezed at,” said Bill Reinsch, a senior adviser at the Center for Strategic and International Studies in Washington. “It sets the stage for a negotiation, but there is a long way to go.”

EU Trade Commissioner Valdis Dombrovskis said on Twitter that he would immediately re-engage with the U.S. “Our strong preference is for a negotiated settlement,” he said. “Otherwise, we will be forced to defend our interests & respond in a proportionate way.”

Airbus said it supports any action the EU takes. The company is “ready to support a negotiation process that leads to a fair settlement,” said Chief Executive Guillaume Faury. “It is time to find a solution now so that tariffs can be removed on both sides of the Atlantic.”

U.S. Trade Representative Robert Lighthizer, the top U.S. trade negotiator, said the EU has “no lawful basis to impose tariffs” because the subsidies for Boeing have already been repealed. He suggested the U.S. would consider retaliating if Brussels moved forward with tariffs. “Any imposition of tariffs based on a measure that has been eliminated is plainly contrary to WTO principles and will force a U.S. response,” he said.

European officials say they can levy an additional $4 billion in tariffs based on a previous finding of other U.S. violations, which would be on top of the $3.99 billion awarded on Tuesday.

Mr. Lighthizer said that the U.S. would prefer to negotiate a solution and is “waiting for a response from the EU to a recent U.S. proposal and will intensify our ongoing negotiations with the EU to restore fair competition and a level playing field to this sector.”

Boeing said it is disappointed that Airbus and the EU are seeking tariffs on the U.S. “Rather than escalating this matter with threats to U.S. businesses and their European customers, Airbus and the EU should be focusing their energies on good-faith efforts to resolve this long-running dispute,” the company said.

Helping broker a deal over government aid for jetliners would be a crucial victory for the WTO’s efforts to build credibility as a global arbitrator, even as the coronavirus pandemic amplifies already-simmering trade spats.

The pandemic-driven decline in air travel has made many airlines unwilling or unable to take most new aircraft deliveries, reducing the current and potential impact of such disputes.

Both the U.S. and the EU have taken steps in recent months to defuse their dispute, which spawned a series of claims, WTO rulings, concessions and appeals that have colored broader trade relations between them and led to tariffs on goods ranging from cheese to industrial parts.

Boeing earlier this year stepped away from tax breaks provided by Washington state for 787 production. The company recently said it planned to end assembly of the plane in the state and move it to South Carolina. Airbus announced a deal in July with Spain and France to change some financial-support agreements.

Both sides now maintain they are in full compliance with WTO guidelines.

The dispute has become an element of the Trump administration’s trade talks with Europe. The two sides have been in formal negotiations since 2018 over a range of issues but have made little progress.

Many other industries have been pulled into the aircraft dispute after the U.S.’s tariffs last year affected a range of cultural products from Europe such as wines, liquors, olives and cheeses.

“Instead of further escalation, we hope the U.S. and the EU will come back to the negotiating table and agree to the immediate and simultaneous removal of tariffs,” said the Distilled Spirits Council of the U.S., a trade group representing distillers.

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