The World Trade Organisation authorised the United States on Wednesday (2 October) to impose tariffs on EU goods worth up to $7.5 billion (€6.8 billion), as a response to illegal subsidies given by European governments to aerospace giant Airbus.
In terms of compensatory tariffs, it is a record figure approved by the Geneva-based organisation.
The US Administration will now have to decide what goods will be hit and the level of tariffs to be imposed. The total value of EU exports to the US affected should remain below the decided figure.
The $7.8 billion figure is actually inferior to the amount requested by the US, around $11.2 billion. In order to prepare its response, Washington listed European exports to the US, worth some $25 billion.
Products that could be hit by punitive measures include aircraft parts but also wine, whiskey and luxury goods.
Once the final list is published by the US Administration, a process that could take 24 to 48 hours, the WTO’s dispute settlement body will need to validate the decision.
The next WTO meeting is scheduled for the end of this month, but the US is expected to request an extraordinary session that could take place in mid-October.
Following the WTO announcement, EU Trade Commissioner Cecilia Malmström warned that “opting for applying countermeasures now would be short-sighted and counterproductive”.
The publication of the final figure brings an end to the 15-year-long dispute between the EU and the US over the subsidies provided to their airspace companies. It now risks escalating the tariff dispute between the two trading partners.
A parallel case filed by the EU against the financial aid given by Washington to Boeing will come to a similar conclusion early next year. The EU is expected to be awarded with similar compensatory rights.
Against this backdrop, Brussels tried to reach a negotiated solution over the past few months. Last week, Malmström met again with US Trade Representative Robert Lighthizer on the margins of the UN General Assembly.
As part of the offer, the Europeans proposed controlling subsidies given to the aircraft industry. But the US repeatedly rebuffed attempts to settle the dispute.
“The mutual imposition of countermeasures,” Malmström said on Wednesday, “would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time.”
The EU still hopes that both sides could avoid mutual retaliation. But if the US decides to finally impose new duties, the Commission and the member states are already considering a “firm response”.
Malmström commented on the eve of the announcement that “all the options” were being considered. While the WTO decision on Boeing is being prepared, one of the ideas would be to exploit unused compensatory tariffs granted to the EU in past trade disputes with the US.
European sources, however, doubted that the Commission would recommend this option as a first step, given that it could easily escalate the dispute between the EU and the US.
Airbus was also still hopeful that both sides could reach a negotiated solution.
“Airbus will continue working with its US partners, customers and suppliers, to address all potential consequences of such tariffs that would be a barrier against free trade and would have a negative impact on not only the US airlines but also US jobs, suppliers, and air travelers,” said CEO Guillaume Faury.
Meanwhile, Boeing wrote in a statement that “even today, Airbus could still completely avoid these tariffs by coming into full compliance with its obligations. We hope it will finally do that.”
Transatlantic ties were already under severe strain, as a result of tariffs imposed by US President Donald Trump against steel and aluminium exporters and Spanish olives.
Both sides also failed to achieve any substantial progress on the trade talks launched in July 2018 to scrap industrial tariffs.
Despite the deteriorating bilateral relationship, the European private sector still hoped that Brussels and Washington could sit down and work on a “positive agenda”, including the rules on subsidies for the aircraft industry.
“The beginning of a new institutional cycle in the EU is an excellent opportunity to reset the Transatlantic relationship,” said head of BusinessEurope Markus Beyer. “The EU-US relationship must be strengthened in the face of common market challenges,” he added.
Glen Hodgon, founder and CEO of Free Trade Europa said that “the situation is grave, but a negotiated settlement is still possible and represents the only sensible solution”.
[Edited by Sam Morgan]