US to slap tariffs on EU following WTO Airbus ruling
October 2, 2019
Aircraft and agricultural items from Europe will be subject to US tariffs in the latest round of a long legal fight. The move sets the stage for tit-for-tat trade escalation between the US and the EU.
Image: picture-alliance/dpa/C Charisius
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The United States will impose tariffs on $7.5 billion (€6.8 billion) worth of European imports in retaliation for illegal EU subsidies to airplane maker Airbus.
The announcement came hours after the World Trade Organization (WTO) on Wednesday ruled on a 15-year-old case that the US could impose $7.5 billion in retaliatory tariffs in response to illegal EU subsidies to Airbus that hurt its American rival Boeing.
Washington plans to impose a 10% tariff on aircraft imported from Europe and apply a 25% import tax on other agricultural and industrial items on October 18, the Office of the US Trade Representative said in a statement.
France ready to respond 'with sanctions'
The French government said it was prepared to retaliate, but that the response to the US tariffs must be agreed within the EU.
"If the American administration rejects the hand that has been held out by France and the European Union, we are preparing ourselves to react with sanctions," French Finance Minister Bruno Le Maire said on Thursday.
The EU's top trade official earlier said the bloc was considering countermeasures, but that it prefers a negotiated settlement.
"If the US decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same," European Commissioner for Trade Cecilia Malmstrom said in a statement.
EU-US trade relationship
The European Union and the United States are each other's largest export markets. Here's a look at what the two regions export and import — and which industries could be affected in a trade war.
Image: Imago/Hoch Zwei Stock/Angerer
More than a trillion euros in trade
The European Union is the US' largest export market, accounting for about one-fifth of all US exports. Similarly, one-fifth of EU exports go to the United States. EU-US trade in goods and services was €1,069.3 billion in 2017. The EU imported €256.2 billion in goods from the US, and exported €375.8 billion.
Image: Imago/Hoch Zwei Stock/Angerer
EU trade surplus
The main exports and imports between the EU and US fall into the categories of machinery and vehicles, chemicals and other manufactured goods. Combined, they accounted for 89 percent of EU exports and imports with the US in 2017. In all three categories, as well as food and drink, the EU had a trade surplus. The US had a trade surplus in raw materials and energy.
Image: Reuters
Cars, machinery top exports
At €167 billion, machinery and vehicles were the largest EU export category to the US, accounting for 44.4 percent of goods exports. The €111.5 billion in machinery and transport equipment was the largest EU import from the US, accounting for 43.6 percent of imports.
Image: picture-alliance/U. Baumgarten
Small part of trade pie
At the end of May 2018, the Trump administration imposed a 25 percent tariff on EU steel and 10 percent tariff on aluminum. Steel and aluminum exports to the United States were worth €3.58 billion in 2017.
Image: Reuters/Y. Herman
Retaliatory tariffs
In response, the European Union developed a list of products it may subject to retaliatory tariffs. These include typical American products like peanut butter, bourbon whiskey, Harley Davidson motorcycles, jeans and orange juice. The exports targeted by the EU are worth about €2.8 billion annually, according to EU officials.
Image: Shaun Dunphy / CC BY-SA 2.0
Services include travel, education
For services, the EU imports amounted to €219.3 billion and exports €218 billion. The top services were in professional and management services, intellectual property, travel and education. About a third of EU-US trade consists of intra-company transfers.
Image: picture-alliance/dpa
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Settlement targeted
The aim of imposing tariffs is to persuade the EU to reach a negotiated settlement, the trade office said.
"For years, Europe has been providing massive subsidies to Airbus that have seriously injured the US aerospace industry and our workers," US Trade Representative Robert Lighthizer said in a statement.
"We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers," he said.
The list of goods primarily targets imports from France, Germany, Spain and the United Kingdom, which are the four countries providing Airbus with subsidies. They include everything from sausages and cheese to cookies and camera parts.
The WTO had approved up to 100% tariffs, but the US decided to limit the tax.
The $7.5 billion represents a small chunk of EU's $688 billion in exports to the United States, but US airlines have warned the tax on aircraft would increase costs and advised that it should not be applied to existing orders.
Paris Air Show takes to the skies again
The 53rd Paris Air Show is taking place this week in the French capital, the largest air show and aerospace industry exhibition event of its kind. The event comes during a turbulent period in global aviation.
Image: Reuters/P. Rossignol
Wares of the air
For aviation buffs, the Paris Air Show is a big deal. Established in 1909, it is held every second year at Paris–Le Bourget Airport, in the north of the French capital. A large trade fair displaying both military and civilian aircraft, it is a chance for major aircraft manufacturers like Boeing and Airbus to display their wares and announce new products.
Image: Reuters/P. Rossignol
Boeing to the pressure?
For Boeing, the event takes place under overcast rather than clear skies. There are huge question marks over the future of its 737 MAX fleet after two crashes involving the model killed 346 people. The plane is currently grounded worldwide and on Monday, Boeing's CFO Greg Smith said the company was open to changing the brand. "We’re committed to doing what we need to do to restore it."
Image: Reuters/P. Rossignol
Boeing's difficulty, Airbus' opportunity?
Boeing is trying to stay out of the limelight in Paris, an understandable move from the US plane maker. That's in stark contrast to Airbus, the darling of European aviation. It is using this week as an opportunity to showcase its A330neo — a new version of the wide-body A330 jet — as well as models of its A350-1000 (pictured) and the A321LR plane.
Image: Reuters/P. Rossignol
European champion
Airbus is precisely the kind of "European champion" that French President Emmanuel Macron has spoken of glowingly since coming to office. The company's stand (above) was one of his first ports of call when visiting the Paris Air Show. Airbus has been celebrating record business of late and recently marked its 50th birthday.
Image: Reuters/B. Tessier
Embracing Embraer
This week is not just about Boeing or Airbus though. It's an opportunity for various players in the global aviation business to make their pitches. Pictured here is the E195-2 from Embraer, a Brazilian aerospace conglomerate. Yet, in an illustration of the power of the global aviation duopoly, Boeing is expected to complete a takeover of the Embraer commercial aircraft division by the end of 2019.
Image: Reuters/P. Rossignol
From Russia with love — and a twin engine
Behold, the Russian multipurpose Ansat helicopter. Capable of use for both medical and "VIP" transport needs, Ansat helicopters manufactured by the Russian Helicopters Holding Company (part of Rostec State Corporation) are being displayed in Europe for the first time. The last time Russian-made civil rotorcraft participated in the Paris Air Show was 30 years ago, in 1989.
Image: Reuters/P. Rossignol
Don't forget the fighter jets
As well as being a major civilian aircraft event, the Paris Air Show has a strong military element. Various military aircraft are on display, such as the one-to-one mock-up of a Turkish fighter aircraft by Turkish Aerospace, pictured here.
Image: Reuters/P. Rossignol
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Long-running case, far-reaching consequences
Although the US tariffs are allowed under international trade law, the move may set off a tit-for-tat escalation with the 28-member bloc at a time of trans-Atlantic trade tensions, uncertainty over Brexit and a trade war between Washington and Beijing that has rattled global markets.
German Chancellor Angela Merkel recognized "we have lost a matter under WTO law."
"This means it's not some sort of arbitrary question but a verdict according to international law that now weighs on Airbus, one must sadly say," she told reporters in Berlin earlier Wednesday. "We have to see how the Americans will react now."
Tit-for-tat? Not quite...
Under WTO law the EU is not allowed to impose retaliatory countermeasures in response to the ruling, but another case may allow it to impose its own tariffs.
The WTO has already found Boeing received billions of dollars of illegal subsidies in a case dating back to 2005 and trade arbitrators are expected later this year to allow the EU to impose its own retaliatory tariffs on US imports.
The world's two largest plane makers have been locked in a dispute at the WTO since 2004, when the US challenged cheap European loans to Airbus, which is jointly owned by Germany, France, Spain and Britain's BAE System.
Separately, the WTO is reviewing US tariffs on steel and aluminum that the Trump administration imposed on national security grounds. The EU says the tariffs are protectionism and imposed its own retaliatory tariffs. The Trump administration is also threatening to impose tariffs on the European automobile sector.
