Business

WTO ruling on Airbus allows for US sanctions on EU

World Trade Organisation upholds ruling that EU failed to stop illegal payments to Airbus

The Airbus A380.

Wed May 16 2018 - 10:36

The US has won the right to impose billions in punitive tariffs on EU imports after the World Trade Organisation handed Washington a victory in the first of two crucial decisions that could finally end a 14-year battle over illegal subsidies to Boeing and Airbus.

The ruling clears the way for what could be the largest retaliatory action in WTO history. It also risks exacerbating growing trade tensions between the EU and US over a range of issues, from threatened US steel tariffs to Washington’s pledge to crack down on European companies doing business in Iran following Donald Trump’s withdrawal last week from a 2015 nuclear accord.

The WTO’s appeals body on Tuesday upheld a 2016 ruling that the EU has failed to eliminate billions in illegal aid to Airbus on two aircraft — the A380 superjumbo and the A350 twin aisle jet. The European Commission said it would take “swift action” to ensure it was in line with the WTO findings.

Support

Boeing, which argued that unlawful aid to these two programmes comes to $9 billion (€7.6 billion) of its original alleged $22 billion in illegal support, welcomed the ruling as vindication of its claims that European governments have for decades illegally subsidised the rise of its biggest rival through cheap loans for the launch of new aircraft.

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“Today’s final ruling sends a clear message: disregard for the rules and illegal subsidies are not tolerated. The commercial success of products and services should be driven by their merits and not by market-distorting actions,” said Dennis Muilenburg, Boeing’s chief executive.

The Trump administration called the decision an important victory.

"President Trump has been clear that we will use every available tool to ensure free and fair trade benefits American workers," said Robert Lighthizer, the US trade representative. "EU aircraft subsidies have cost American aerospace companies tens of billions of dollars in lost revenue. . . Unless the EU finally takes action to stop breaking the rules and harming US interests, the United States will have to move forward with countermeasures on EU products."

However, the European Commission also claimed victory as the WTO rejected 204 of the total 218 claims put forward by the US.

“Today the WTO. . . has definitively rejected the US challenge on the bulk of EU support to Airbus, and agreed that the EU has largely complied with its original findings,” said Cecilia Malmstrom, EU trade commissioner. “Significantly, it dismissed the vast majority of the US claims that this support had damaged Boeing’s aircraft sales.”

Battle

Tuesday’s finding is the end of the first stage in a battle that erupted in 2004. The exact amount of allowed US retaliation will be determined by a separate process that could take months.

The WTO’s appellate body will also rule in the coming months on whether the US has complied with an order in 2012 to address its own illegal subsidies to Boeing through Washington state tax breaks.

A ruling in favour of the EU – which claims Boeing has enjoyed more than $20 billion in illegal aid – would allow Brussels to impose its own punitive tariffs on US goods under WTO rules.

The row between Boeing and Airbus is one of the most contentious battles in the global trade system. The dispute reached a head in 2010 and 2011 when the WTO ruled that both Boeing and Airbus had collected billions in unlawful assistance.

Trade lawyers and other experts said Tuesday’s ruling was a mixed bag and appeared likely to reduce the size of any potential US retaliation, which would still have to be determined in a complicated process.

But Chad Bown, an expert on WTO disputes at the Peterson Institute for International Economics, said the retaliation was still likely to be the largest ever authorised by the global trade referee and could help the Trump administration increase pressure on the EU to make other trade concessions.

One potential way to do that, Mr Bown said, would be by using the WTO ruling as justification to raise tariffs on cars imported from Europe, which President Trump has repeatedly complained face lower tariffs in the US than American cars exported to the EU. “The Trump administration has showed that it likes to use tariffs as leverage and hold it over US trading partners,” he said. “This could help them do that.”

Tariffs

Before it can impose tariffs, the US will have to request an estimate of damages from a WTO arbitration panel. Boeing has argued that it lost billions in sales to Asia, the Middle East and Europe as a result of the subsidised launch of the A350 and A380. Deciding the level of countermeasures could take several months or up to more than a year, according to lawyers involved on both sides.

Boeing said tariffs totalling billions could come as early as next year. Nevertheless, Airbus insisted that any penalties imposed by the US were likely to be minor, as the outstanding compliance issues on the A350 and A380 were not significant and were being addressed. The issue was not the total amount of the loans from its four founder countries – France, Germany, the UK and Spain – but the interest rate that had been charged, said one person close to the subject.

Tom Enders, Airbus chief executive, said Boeing would struggle to convince the arbitration panel of significant damage from the outstanding issues. “Despite Boeing’s rhetoric, it is clear that their position today is straightforward healthy: they have half the market and a full order book, they have clearly not been damaged by Airbus repayable loans.”

– Copyright The Financial Times Limited 2018

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