US threatens EU with new tariffs in Airbus-Boeing battle

The US has threatened the EU with a raft of new tariff increases related to the Airbus subsidy case at the WTO, a move destined to further sour transatlantic economic relations as Donald Trump arrives in London for the Nato summit. 

Robert Lighthizer, the US trade representative, raised the possibility of higher levies after securing Washington’s latest legal victory in the long-running dispute, with a WTO panel on Monday saying that Brussels had failed to comply with its rulings. 

“Strong action is needed to convince the EU that its interest lie in eliminating these market-distorting subsidies now and in the future so that our industries can compete on a level playing field,” Mr Lighthizer said in a statement.

The US already slapped tariffs on up to $7.5bn of EU goods in connection with the case in October, including cheese, wine and aircraft, but USTR said Washington might go beyond that. 

“In light of today’s report and the lack of progress in efforts to resolve this dispute, the United States is initiating a process to assess increasing the tariff rates and subjecting additional EU products to the tariffs,” it said. 

The threat of new tariffs against EU goods could provide for a tense economic backdrop to the Nato summit in London, which Mr Trump is attending this week with other leaders of the alliance.

The US is separately expected to release the results of a probe on France’s digital services tax on Monday, which could pave the way for separate punitive measures against Paris. Based on national security grounds, Washington continues to impose tariffs on EU metals, and while it has not pressed ahead with plans to impose tariffs on EU cars and car parts, it has not ruled out doing so in the future.

Brussels reacted angrily to the WTO’s ruling on Monday, accusing the Geneva-based body of “serious legal errors” in the case. 

The WTO’s appellate body on Monday said the EU and four of its member states — France, Germany, Spain and the UK — had failed to comply with a 2016 ruling to eradicate all illegal state support to Airbus for its A350 mid-range twin-aisle aircraft and the A380 superjumbo.

This is the second time that a WTO panel has rejected the EU’s claim of compliance. However, it is far from the end of the 15-year dispute. The WTO is expected to rule next spring on whether the EU will be allowed to impose tariffs on US imports as a result of illegal subsidies to Boeing. 

The European Commission reacted sharply to the findings. 

“We consider that the panel has made a number of serious legal errors in its assessment of EU compliance,” a spokesperson said. “The report also contains statements concerning workable ways to comply with the WTO rules on subsidies that would be very problematic for a larger part of the WTO membership to comply with.”

The commission was considering an appeal “to have these legal errors corrected”, the spokesperson said.

In particular the EU is expected to challenge the WTO’s finding that the US continues to experience harm as a result of subsidies to the A380 programme, which was cancelled in February. 

The WTO has rejected the EU’s argument that it had eradicated any wrongful subsidies by modifying the contracts granting favourable loans to Airbus for the launch of the A350 XWB. Moreover, simply repaying outstanding principal and interest accrued did not end the subsidy, the WTO argued. 

The EU has also failed to show that amendments to the four A380 loan agreements had ended the wrongful support, according to the WTO. The panel rejected a new claim by Boeing that certain research and technological development caused harm to the US.

The tit-for-tat battle has left Washington and Brussels at odds over how to support their aerospace champions.

The dispute — launched by the US in 2004, the year after Airbus’s deliveries overtook Boeing’s for the first time — reached a head in 2010 and 2011. The WTO ruled that both companies had collected billions in unlawful assistance — Boeing from government money through contracts for defence and space business as well as tax breaks, and Airbus through aid to launch many aircraft repayable on delivery. 

Washington initially claimed that $22bn in illegal funding found its way to Airbus, while the EU alleged more than $23bn had been channelled to Boeing. 

Since then the dispute has spiralled through appeal and counter-appeal, as additional allegations piled up. 

Both sides have called for negotiations to reach a new settlement on support for aerospace, yet each refuses the other’s terms laid down for starting talks. The urgency to find a solution is growing as new competitors emerge in China and Russia, where state support for aircraft programmes is strong.

Both Boeing and Airbus are also facing other sizeable challenges. Boeing is struggling to regain the confidence of airlines and passengers amid the crisis over its 737 Max single-aisle plane, which suffered two crashes within five months. Airbus, meanwhile, has had to cancel its A380 superjumbo due to a lack of orders. 

“Today’s ruling is a complete loss for Airbus and its government sponsors,” Boeing said in a statement. “It confirms what has long been clear: the EU has failed to comply with WTO rulings despite having years to do so, and billions of euros of illegal government subsidies to Airbus continue to harm the US aerospace industry. We hope that Airbus and the EU will now finally turn their energies to resolving this case.”

Airbus said it would support the EU in an appeal against the findings. It also reiterated a call for negotiations to end the long trade battle. “A negotiated settlement is the only way to restore and preserve the free, fair competition and open trade that is essential for an essential and global aviation industry,” the company said. 

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