Last Friday the United States Trade Representative (USTR) ramped up its tariffs on European aircraft, increasing the duty from 10% to 15%, effective March 18.

It also announced it would make minor modifications to 25% tariffs imposed on cheese, wine, Irish and Scotch whisky, and other non-aircraft products from the EU, namely adding a 25% tax on French and German butcher and kitchen knives and dropping prune juice from the list of taxed items. While the move is hard-hitting, particularly for European aircraft, EU officials had feared more drastic measures in an increasingly fraught trade relationship with the U.S.

Background

The tariffs are part of a 15-year-old complaint over European aircraft subsidies to plane maker Airbus, putting Boeing, its U.S. competitor, at a disadvantage. Last October, the World Trade Organization authorized the U.S. to impose tariffs of up to 100% on 7.5 billion dollars’ worth of EU exports annually to recoup its losses. The imposed duties are lower than those permitted under WTO’s ruling, however, USTR decided against additional escalation after a mid-December public consultation recorded protestations from more than 26,000 U.S. consumers and industries. While USTR’s latest action on tariffs thus could have been significantly more painful, businesses hoping for a relief remain disappointed with the levies, which are expected to continue until the U.S. and EU come to a negotiated resolution. As the two sides cannot agree on terms for starting talks, this remains an uncertainty at least in the short-term.

Potential for Escalation

Further escalation by Washington also is anticipated if Brussels hits U.S. imports with tariffs over unfair subsidies to Boeing. The WTO is expected to rule this spring on damages caused by U.S. plane maker’s state tax breaks, which would authorize the EU to target U.S. goods with retaliatory tariffs. A preliminary list of U.S. goods proposed as targets for EU retaliatory tariffs was drawn up last year, focusing primarily on U.S. farm products. Although Brussels no doubt is mulling over a right response to the most recent U.S. tariff hikes on aircraft, the broader picture for the EU remains to reset its trade relations with the U.S.

Impact on EU-US Trade Agreement

At the beginning of the year, European Commission President Ursula von der Leyen announced that she is seeking a mini trade deal with the U.S. in the next few weeks covering trade, technology and energy. However, the U.S. insists any deal must include EU agricultural concessions – a sticky and politically explosive topic for the EU. EU officials have conceded agricultural concessions could come in the shape of separate commitments lowering EU non-tariff barriers for certain U.S. farm goods. It has been suggested this could include the approval of more genetically modified crops for sale in the bloc, which is of obvious interest to the U.S.
Continue Reading U.S. increases tariffs on European aircraft: EU response a litmus test for transatlantic trade relations

On October 2, 2019, the World Trade Organization (“WTO”) awarded the U.S. the largest arbitration award in the WTO’s history, $7.5 billion annually, in retaliation for the unlawful EU subsidization of Airbus.  The award comes after nearly 15 years of litigation at the WTO where the U.S. successfully argued that the EU and four of its member states conferred more than $18 billion to Airbus in subsidized financing.

As retaliation, the U.S. will impose an additional 10 percent duty on airplanes from France, Germany, Spain, and the United Kingdom, as well as an additional 25 percent duty on certain goods including single malt Irish and Scotch whiskies, coffee from Germany, cheeses from several countries, and certain garments from the United Kingdom.   The retaliatory tariffs will likely take effect on October 18, 2019 and will be “continually re-evaluate{d}. . . based on {U.S.} discussions with the EU.”  In selecting the goods that will be affected by the retaliatory tariffs, the Office of the U.S. Trade Representative explained that the tariffs are intended to most heavily impact imports from France, Germany, Spain, and the United Kingdom, the Member States that provided Airbus with the disputed subsidies.

Meanwhile, tariff threats also loom over the U.S. in a parallel WTO case regarding the illegal subsidization of Boeing in the U.S.  The global trade regulator is expected within six-to-eight months to authorize the EU to impose its own retaliatory tariffs on U.S. goods. In April, the EU published a preliminary list of U.S. products to be considered for countermeasures. Ahead of the WTO’s ruling on its case regarding the subsidization of Boeing, the EU might choose to revoke prior settlements with the U.S. in other WTO cases, which would effectively create tariffs on approximately $4 billion worth of U.S. imports into the EU.
Continue Reading A Tale of Two Aircraft: U.S. Wins Historic Award in Airbus Case While EU Awaits Ruling on Boeing