The World Trade Organization (WTO) ruled Tuesday that the European Union can impose tariffs worth $4 billion a year on a list of U.S. goods, including Boeing jets sold in Europe.
The result parallels an earlier ruling against the EU allowing U.S. tariffs that for the past year have increased the price of many European products sold here, including Airbus jets.
The ruling raises the possibility that, just as Boeing scrambles to ramp up 737 MAX jet deliveries early next year, the EU could slap a 15% tariff on MAX jets delivered to Ryanair and other European airlines.
It’s unlikely the European Commission will impose the authorized tariffs before the U.S. presidential election. After that, the ruling may spur transatlantic negotiations to try to reach a settlement of the 16-year dispute over government subsidies to airplane manufacturers.
In March, in order to bring Boeing into compliance with WTO rules, Washington state eliminated its main tax incentive for the company. The U.S. Trade Representative said that action removes the legal basis for Tuesday’s ruling.
Boeing said in a statement said it is “disappointed that Airbus and the EU continue to seek to impose tariffs on US companies and their workers based on a tax provision that has been fully and verifiably repealed.”
“Airbus and the EU should be focusing their energies on good-faith efforts to resolve this long-running dispute,” Boeing added.
In a statement, Airbus CEO Guillaume Faury said “Airbus did not start this WTO dispute, and we do not wish to continue the harm to the customers and suppliers of the aviation industry.”
“We remain prepared and ready to support a negotiation process that leads to a fair settlement,” he added.
Bureaucratic and political complications
The WTO authorized the action against the U.S. in response to illegal government subsidies for Boeing. The parallel ruling allowed the U.S. to impose $7.5 billion in tariffs on EU goods for illegal subsidies to Airbus.
In October 2019, 15 years into the case, the U.S. finally slapped tariffs of 25% on a series of non-aerospace goods including European wine, whiskey and cheese and a 10% tariff on European-built Airbus jets. In March, the U.S. increased the tariff on imports of Airbus planes — though not those assembled in Mobile, Alabama — to 15%.
Settlement of this long-running dispute over airplane manufacturing subsidies is mired in legal, bureaucratic and political complications.
Tuesday’s approval of tariffs against the U.S. is based on a March 2019 WTO decision that Washington state’s business & occupation tax breaks for Boeing were illegal — the specific tax break the state Legislature eliminated in March.
United States Trade Representative Robert Lighthizer issued a strong objection Tuesday.
“Because Washington State repealed that tax break earlier this year, the EU has no valid basis to retaliate against any U.S. products,” Lighthizer said in a statement. “Any imposition of tariffs based on a measure that has been eliminated is plainly contrary to WTO principles and will force a U.S. response.”
However, the WTO panel rejected that argument in June, arguing that the harm to Airbus from that subsidy concerned the period 2013 to 2015, before the tax was eliminated.
Any U.S. appeal of this ruling cannot be heard at present because the separate WTO appellate body can no longer function. That’s because the U.S., unhappy with WTO rulings against its imposition of trade tariffs in other cases, has refused to appoint new judges to the body.
Similarly, Airbus claims that because its A380 superjumbo jet is no longer being sold, the illegal government aid it received to launch that plane should no longer be an issue in its competition with Boeing. The appellate body cannot rule on that either.
President Donald Trump has soured relations with the EU on multiple issues from support for NATO to free trade, and he and Lighthizer have each been sharp critics of the WTO.
If Democratic presidential challenger Joe Biden were to win the election next month, that would almost certainly improve U.S.-EU relations and could potentially hasten a settlement. However, Biden wouldn’t want to be seen as a pushover on trade talks, making the immediate impact unclear.
In his statement Tuesday, Lighthizer said the U.S. “is determined to find a resolution to this dispute” that addresses the harm to U.S. aerospace from the subsidies European governments have provided to Airbus.
“We are waiting for a response from the EU to a recent U.S. proposal and will intensify our ongoing negotiations with the EU,” he said.
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