U.S. Proposes Select Aircraft and Parts Tariffs for EU Airbus Subsidies

 - April 11, 2019, 1:21 PM

The long-simmering feud between the U.S. and the European Union (EU) over the latter’s continued subsidization of Airbus threatens to trigger an all-out trade war. Earlier this week, the Office of the United States Trade Representative (USTR) formally began the process to initiate tariffs against select imports from the EU due to what it charges are illegal subsidies the EU provides to Airbus fixed-wing aircraft. The proposed tariffs would cover almost all civil Airbus aircraft—fixed-wing and helicopters—and parts imported into the U.S. 

In a statement released to AIN April 11, Airbus spokesman James Darcy strongly challenged the premise for the proposed tariffs. “This proposal is unjustified. Airbus has taken all necessary measures to comply with the relatively minor elements highlighted by the WTO in May 2018 (which, even then, were less than 6 percent of all of Boeing’s subsidy claims) regarding alleged aid to Airbus," he wrote. "By contrast, Boeing has not shown any willingness to comply with the March 28, 2019 WTO decision regarding the massive subsidies received by Boeing that are clearly in contravention of WTO rules. The adoption expected this week of the WTO report will allow EU to start sanctions proceeding with far larger countermeasures against the U.S. This all leads to unnecessary trade tensions, and that shows the only reasonable solution is a negotiated settlement.”

USTR Robert Lighthizer said in a prepared statement, “This case has been in litigation for 14 years, and the time has come for action. The [Trump] Administration is preparing to respond immediately when the World Trade Organization (WTO) issues its finding on the value of U.S. countermeasures. Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.” 

Specifically, the USTR cited the filing of a 2004 U.S. complaint followed by a 2011 WTO finding that the EU and the four member states that are the principal sponsors of Airbus—France, Germany, Spain and the UK—provided Airbus with $18 billion in subsidized financing from 1968 to 2006, including “launch” aid that the WTO concluded caused U.S.-based Boeing to lose the sale of more than 300 aircraft worldwide. In response to the 2011 finding, Airbus removed some, but not all, subsidies. Left in place were $5 billion in launch and other subsidies for the A350 and A380. A May 2018 WTO appellate report found those subsidies caused Boeing to lose sales of B787s and B747s in markets including the EU, Australia, China, Korea, Singapore, and the UAE.  

In response to the appellate report, the U.S. requested authority to impose $11.2 billion worth of countermeasures on the EU. The EU has challenged that amount and the matter is currently before a WTO arbitrator who will issue a ruling shortly. 

Meanwhile, the USTR has issued a 13-page proposed retaliatory tariff target list of a wide range of EU products from France, Germany, Spain, and the UK, and Airbus aircraft are at the top. The total value of goods on the list is estimated at $21 billion by the USTR. They include all new non-military helicopters, fixed-wing aircraft, and related parts, including major subassemblies—fuselage sections, wings, wing assemblies, and horizontal and vertical stabilizers—for aircraft weighing more than 33,000 pounds.

These provisions appeared aimed at stalling production of civil aircraft at the Airbus A220 and A320-series airliner plant in Mobile, Alabama. Production of the A220 at Mobile is scheduled to begin in 2020. Of the approximately 540 A220 orders currently booked, approximately 190 are from U.S. carriers such as Delta, JetBlue, and Republic. Adding the A220 line in Mobile is expected to create 600 new jobs. Through December 2018, the Mobile plant had produced 100 aircraft. It delivered its first aircraft, an A321, from Mobile in April 2016.

The proposed tariffs also have the potential to impact larger Dassault Falcon business jet models weighing more than 33,000 pounds “unladen.” Those include the Falcon 7X and 8X. That includes sales of new aircraft and parts for existing aircraft. 

The proposed weight limitation would appear to exclude the prospect of tariffs on parts for Airbus civil helicopters in the U.S. or the assembly of new civil helicopters in the U.S., namely the H125 single and EC145 twin, currently assembled for the North American market at its Columbus, Mississippi production plant. The majority of production at Columbus consists of UH-72As, variants of the EC145, destined for the U.S. military.

Last year, Airbus delivered 356 helicopters worldwide and 57 to North America. Should tariffs be imposed, they could adversely impact the prices of popular models sold in the U.S. that are not assembled in Columbus. Those models include the H130 single, a mainstay of the U.S. helitour market, and the H135 light twin, a model popular with air ambulance operators.

However, in previous interviews with AIN, Airbus Helicopters Inc. president Chris Emerson said that adding production of either model in Columbus would pose minimal difficulty, particularly in the case of the H130, which shares many core components with the H125. Airbus already is believed to have developed plans to produce the H135 in Columbus as part of its campaign to offer it to the U.S. Navy as a replacement training aircraft for the TH-57. 

In the coming weeks, the U.S. International Trade Commission, as part of an interagency committee, will be seeking public comment any new proposed tariff targets. The first public hearing is scheduled for May 15 in Washington, D.C. It will also accept written comments through May 28.

Teal Group aviation analyst and vice president Richard Aboulafia told AIN that any proposed tariff, if implemented, would likely negatively impact consumers. “Like all tariffs, ultimately it’s the consumer that pays. That means airlines and passengers.”