WTO Clears EU For $4B In Boeing Airliner Penalties; Negotiations Desired

The European Union is cleared to apply almost $4 billion worth of punitive tariffs on imported goods from the U.S. after the World Trade Organization (WTO) on Oct. 13 revealed the final penalty amount stemming from illegal U.S. subsidies provided to Boeing in making large commercial aircraft.

The ruling, which had been delayed from the spring, ignited another round of public invitations and exasperations that Airbus, Boeing, the EU and the U.S. must ultimately find a negotiated settlement to the 16-year airliner subsidy dispute–the longest in the trade body’s history.

A year ago, in a separate-but-related case, the WTO cleared the U.S. to pursue $7.5 billion in tariffs against its European imports. For the moment, finished Airbus aircraft exported to the U.S. are subject to a 15% levy and the penalty on some other European goods go up to 25%-in reality, hitting politically targeted “hostage” industries such as alcohol and olive exporters far harder than Airbus, which has narrowbody final assembly lines in Mobile, Alabama that currently avert the tariffs.

“I have been engaging with my American counterpart, Amb. Lighthizer, and it is my hope that the U.S. will now drop the tariffs imposed on EU exports last year,” European trade commissioner and EVP for an Economy that Works for People Valdis Dombrovskis said. “This would generate positive momentum both economically and politically and help us to find common ground in other key areas. The EU will continue to vigorously pursue this outcome. If it does not happen, we will be forced to exercise our rights and impose similar tariffs. While we are fully prepared for this possibility, we will do so reluctantly.”

For his part, U.S. Trade Representative Robert Lighthizer asserted that if the EU does impose penalties, it will “force” an unspecified U.S. response, although he too sounded open to negotiation. “The United States is determined to find a resolution to this dispute that addresses the massive subsidies European governments have provided to Airbus and the harm to U.S. aerospace workers and businesses,” Lighthizer said. “We are 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.”

Both sides claim they have unwound or stopped the illegal subsidies, obviating formal tariffs. For instance, an April 1 legal change in Washington state that was pushed by Boeing dropped the tax benefit there for aerospace manufacturers.

However, only the WTO can decide if an offended party has been made whole before actually making tariffs irrelevant. The U.S. continues to block the appointment of new judges at the WTO, which also delays processing some of the compliance measures Airbus has put in place in its own subsidy case. A WTO panel decided in December 2019 that Airbus is still partially not compliant with trade rules, a decision that Airbus subsequently appealed. That appeal is now held up.

European industry sources point out that the WTO decision comes on top of $4 billion in previously authorized tariffs stemming from U.S. foreign sales tax breaks for Boeing that have not been implemented yet. They reject Boeing’s claims that harmful subsidies and tax breaks by Washington state have been removed, instead stressing that five of six of the schemes are still in place.

While Airbus can lean on its Mobile exception, sources point out that this is adding a lot of complexity and logistics cost. There also is no U.S. final assembly line for Airbus widebodies. Despite the COVID-19 pandemic, Delta Air Lines has taken delivery of two A350-900s and two A330-900s in September alone. The carrier received another A330-900 in February in addition to several A220s.

The Oct. 13 WTO decision must be affirmed by the group’s dispute settlement body at its next meeting, Oct. 26, meaning European tariffs on Boeing aircraft or other U.S. imports would be possible from Oct. 27 onward. However, there are clear indications that the EU will wait until after the Nov. 3 U.S. presidential election. Dombrovskis told the Financial Times that, “of course, if the U.S. is not withdrawing their tariffs, we have no choice but to then introduce our tariffs.” He added, “if we are not seeing clear movement from the U.S. side on withdrawing or at least suspending their tariffs, this will not require much delay from our side.”

There is broad consensus in Brussels and Europe at large that trade disputes, while not entirely disappearing, would be easier dealt with under a potential Joe Biden administration rather than under the current Trump administration, and that announcing tariffs ahead of the election would be counterproductive.

Dombrovskis only took office earlier this week following the resignation of his predecessor Phil Hogan. Dombrovskis made clear from the start that returning to more normal trade relations with the U.S. and settling the dispute over the WTO in general are key targets on his agenda.

The airliner subsidy dispute dates to a different era in the Airbus-Boeing commercial aircraft war, long before COVID-19 gutted commercial air traffic in 2020 and set in motion what many observers believe will be the greatest-ever makeover in commercial aircraft. “It’ll just be a matter of time before so much of the industry is taking government assistance,” Teal Group adviser Richard Aboulafia noted this summer, “but it’s just a lot less relevant.”