Brussels Warns U.S. of Escalation of Aerospace Subsidy Dispute

 - July 7, 2020, 10:00 AM
Improper government support of Airbus airplanes including the A350 led to a WTO decision to allow countermeasures by the U.S. (Photo: Airbus)

European Union trade commissioner Phil Hogan warned of an escalation of the trade war between the EU and the U.S. Monday after he said Washington had rejected overtures to settle the 15-year-old dispute over subsidies to Airbus and Boeing jets. The latest salvo follows an increase in March of U.S. duties on Airbus jets and European airplane parts from 10 to 15 percent following a determination by the World Trade Organization that EU member states illegally subsidized the development of the A350 and A380.

Speaking during a European Parliament trade committee hearing, Hogan criticized the U.S. for its most recent threats to place duties on a range of EU goods and the Trump Administration’s apparent unwillingness to negotiate.

“The ball is in the court of the U.S.," Hogan said. "We tried to negotiate a mutually beneficial outcome on the Airbus-Boeing dispute that we have at the moment, and they rejected our negotiating paper on two occasions. We are waiting for the panel in the WTO to report. This is now put back until early September unfortunately because of the delays arising from Covid-19. But I hope it will be as soon as possible in September that we will get a result here. But I want to reassure people that we are ready to act decisively and strongly on the EU side if we don’t get a type of outcome that we expect from the U.S. in relation to finalizing this 15-year-old dispute.”

Based on the WTO ruling of the subsidy case against Airbus, the U.S. may impose tariffs of up to 100 percent on $7.5 billion of annual EU imports—including Airbus aircraft. The new duty rate follows a compliance report from the Geneva trade watchdog, released in December, that found that changes made to Airbus A350 and A380 development loans did not bring the four so-called Airbus countries—France, Germany, Spain, and the UK—in compliance with WTO recommendations. 

At the behest of Boeing, Washington State in March rescinded tax breaks to the company introduced more than a decade and a half ago and renewed in 2013 to attract 777X wing production to the state. The U.S. Trade Representative (USTR) in May notified the WTO of the elimination of the tax breaks, but a formal ruling remains months away.

Notwithstanding his apparent frustration with the lack of a U.S. response, Hogan did not completely rule out further negotiations over the dispute regarding aerospace subsidies.

“We have tried our best to manage our relationship in a very difficult political environment with the U.S. and we continue to talk to Ambassador [Robert] Lighthizer and his team and USTR about what we can do together, albeit maybe in a limited way,” he said.