European aircraft manufacturer Airbus has issued a stark warning regarding the level of countermeasures the World Trade Organization (WTO) has authorized the U.S. to impose on products from the European Union (EU). Airbus warned in an October 2 news release that a decision by the U.S. trade representative to impose tariffs on the importation of aircraft and/or aircraft components will create insecurity and disruption not only to the aerospace industry, but also to the broader global economy.
The WTO on October 2 green-lighted the imposition of $7.5 billion of tariffs on a wide variety of goods imported from the EU, a smaller levy than had been sought by the U.S. The tariffs, the largest ever imposed by the WTO, are in retaliation for illegal subsidies granted to Airbus, particularly in relation to development costs on A350 and A380 aircraft.
In calling for a negotiated solution to the long-simmering tit-for-tat dispute, Guillaume Faury, Airbus chief executive officer, pledged that, “Airbus will continue working with its U.S. 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 U.S. airlines but also U.S. jobs, suppliers and air travelers.”
Airbus cautioned in its news release that in upcoming discussions, the WTO will address tariff countermeasures that could be imposed by the EU on U.S. products – including imported Boeing aircraft – in the parallel counter case regarding illegal subsidies to Boeing. Airbus charges that the WTO has already found that the U.S. failed to address illegal subsidies causing harm to Airbus. The European aircraft manufacturer also has warned that countermeasures imposed by the WTO on U.S. products could surpass the level of U.S. sanctions.
Reacting to the WTO ruling, Cecilia Malmstrom, European Commission trade commissioner, stated that imposition of the WTO-sanctioned tariffs would be “short-sighted and counterproductive.”
Malmstrom said, “Both the EU and the U.S. have been found at fault by the WTO dispute settlement system for continuing to provide certain unlawful subsidies to their aircraft manufacturers.”
She added, “The mutual imposition of countermeasures, however, 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 WTO ruled in 2010 and 2011 that both aircraft manufacturers had been recipients of illegal government aid; Boeing from government contracts and tax breaks and Airbus for launch aid that has not been repaid.
Tariffs on goods imported from the EU will hit U.S. consumers at the same time that those consumers are being affected by levies placed by the Trump Administration on goods imported from China. The Trump Administration consistently has taken a hard line, defending the effectiveness of its tariffs on Chinese products in bringing China to the negotiating table, and also in convincing Japan to open its agricultural market to U.S. products.
The Administration is unlikely to heed calls for softening its approach in implementing tariffs. It is uncertain whether tariffs on Airbus aircraft would affect firm orders already placed by U.S. carriers and leasing companies or would be levied only on orders not yet firmed up.