U.S. and EU Declare Truce over Boeing and Airbus Subsidies

 - March 8, 2021, 6:24 AM
Airbus has assembled aircraft at its U.S. plant in Mobile, Alabama, since 2019, but so far this has done little to placate trade tensions between the U.S. and European aerospace sectors. (Photo: Airbus)

U.S. and European Union (EU) trade representatives have been given four months to make a fresh start in resolving the long-running dispute over alleged illegal subsidies for their respective aerospace industries. Following a March 5 call between U.S. President Joe Biden and EU President Ursula von der Leyen, the two sides agreed to suspend more than $11 billion worth of tariffs on a wide array of products to allow time for fresh talks.

In 2019, the World Trade Organization (WTO) authorized the U.S. to impose around $7.5 billion in tariffs in retaliation for government subsidies that it deemed improperly given to Airbus. The sanctions included a 15 percent tariff on Airbus aircraft, but also on a variety of non-aviation-related products, including wine, cheese, and whiskey.

Then, in October 2020, the WTO gave the EU approval to impose retaliatory tariffs on the U.S. after determining that government subsidies for Boeing had also breached trade rules. In November, the EU started imposing tariffs valued at some $4 billion, covering goods such as tractors, orange juice, and tomato ketchup, but also including a 15 percent tariff on U.S. aircraft imported to Europe.

At the start of 2021, the UK, now a former EU member state, unilaterally announced it would suspend tariffs against the U.S. associated with Airbus manufacturing work conducted in Britain. On March 4, the U.S. confirmed it would reciprocate the offer to end tariffs against the UK, which, included tariffs on Scotch whiskey. 

The latest development follows earlier WTO rulings that found that both the EU and the U.S. had failed to abide by earlier instructions to end illegal subsidies to Airbus and Boeing. Discussions at a political level became increasingly rancorous during the last year of the Trump administration and there seemed little prospect of a compromise.

Congress has yet to confirm President Biden’s nomination of Katherine Tai as trade representative. The U.S. trade representative’s office has indicated a willingness to reach a new agreement with its European counterparts, signaling what it sees as the new challenge posed by Chinese aircraft manufacturers to aerospace leaders on both sides of the Atlantic.

Statements from Biden and von der Leyen did not explain how the new talks will proceed and how the WTO might ratify any agreement, perhaps as some sort of out-of-court settlement. The tariffs truce lasts for an initial four-month period, implying either that more time could be made available or that tariffs would be reimposed if talks fail.