WTO ruling on Airbus-Boeing dispute exacerbates US-EU trade tensions
Ruth Green, IBA Multimedia Journalist
The world’s longest running trade dispute came to a head in October, as the World Trade Organization (WTO) gave the green light to the US government to impose $7.5bn tariffs on EU goods. The potential for tit-for-tat tariffs and an all-out transatlantic trade war threaten to have far-reaching consequences for many sectors.
The dispute began in 2004 when the US filed a case with the WTO alleging that European aerospace company Airbus had received billions of dollars in illegal subsidies. The EU retaliated, claiming that US rival Boeing had been granted billions of dollars in ‘trade-distorting’ subsidies. The EU initiated a separate case in 2014 challenging US tax breaks and other incentives granted to Boeing to support the production of its 777X aircraft.
Over the past 15 years, the global trade body has ruled that both the US and the EU have unfairly subsidised their aircraft makers. The two parties have also launched numerous counterclaims alleging the other side’s failure to comply with WTO rulings. Legal costs for the cases are reportedly in excess of $100m.
This is a very important development and has the potential to really set back US-EU trade relations
Eric Emerson
Co-Chair, International Trade and Customs Law Committee
The award, which is the largest in WTO history, could be hugely significant for the transatlantic trade relationship. ‘This is a very important development and has the potential to really set back US-EU trade relations,’ says Eric Emerson, a partner at Steptoe & Johnson in Washington DC and Co-Chair of the IBA International Trade and Customs Law Committee. ‘Disputes like this drive a wedge even more between the US and Europe, which really have always been the two leaders in resolving these types of multilateral trade problems.’
Following the ruling, US trade officials imposed a 10 per cent tariff on Airbus aircraft and 25 per cent tariffs on a range of other products, including certain spirits and several European wines and cheese. Cecilia Malmström, European Commissioner for Trade, said the two parties had ‘a joint responsibility to sit down and negotiate a settlement’, but that the EU has been left with no choice but to impose retaliatory tariffs once the WTO rules on what countermeasures the EU can take in early 2020.
Vanessa Sciarra is Vice President for Legal Affairs and Trade and Investment Policy at the National Foreign Trade Council in Washington DC. She agrees that the tariffs have the potential to exacerbate the already fraught trade relationship between Washington and Brussels. ‘The EU as a bloc is a very important trading partner for US companies, but those same companies have lots of trade complaints about many, many trade irritants in the relationship,’ she says. ‘Many of these stem from divergent regulatory choices and those areas of divergence will only multiply if the US-EU trade communications are not improved. Further outside factors, such as the impending Brexit deadline and the installation of new EU leadership in early November, are complicating matters.’
Boeing and Airbus issued robust responses to the ruling and subsequent tariffs imposed by the US Administration. ‘Europe is facing tariffs today because Airbus has refused for years to comply with WTO rulings’, Boeing said in a statement. ‘Yet even today, Airbus could still completely avoid these tariffs by coming into full compliance with its obligations. We hope it will finally do that.’ An Airbus spokesperson said the company was keen that both sides could ‘find a negotiated solution before creating serious damage to the aviation industry as well as to trade relations and the global economy.’
Gerard Melling, Senior Vice-President, Legal, at M&T Aviation USA and an officer on the IBA Aviation Law Committee, says the tariffs will hit the US aircraft industry hard. ‘A straight tariff on Airbus aircraft would hurt US manufacturers,’ he says. ‘It would also hurt US entities who have significant advance purchase orders – airlines and leasing companies based in the USA.’
The tariffs also pose challenges for many of the food and drinks industry’s biggest players. A handful of products owned by Diageo, including single-malt Scotch whiskies and Baileys liqueur, are affected. Siobhán Moriarty, General Counsel & Company Secretary at the spirits maker, told Global Insight the company ‘wouldn't be immune from a trade war or the impact of tariffs’ and that it was closely monitoring developments in the event of any further escalation.
The latest round of tariffs is the most significant trade action levied by Washington against Brussels since May 2018 when the Trump Administration imposed tariffs on steel and aluminium imports from Canada, the EU and Mexico. The ruling also comes at a time of ongoing trade tensions with other major world powers like China and highlights the current Administration’s inconsistent approach to trade policy.
‘What is confusing to the public is why these tariffs are legitimate when I would argue that many other tariffs which the US President has put in place on US imports, such as steel, aluminium, Chinese products and possibly soon autos/auto parts, are not,’ says Sciarra. ‘That takes us down the road of whether the US President is correctly using US statutes. He’s not in many cases and it’s very unclear how steel, aluminium or auto exports from NATO allies could possibly be challenging to US national security interests.’
Although the most recent US tariffs have caused upset in a number of sectors, they are consistent with WTO rules. The ruling marks the closing chapter in this long-running saga, provided that neither party exceeds the thresholds set by the WTO’s arbitrators. ‘This is the end of the line,’ says Emerson, ‘unless – and we have not seen this so far – that the US or the EU were to retaliate in excess of the WTO.’