US set to impose tariffs on $7.5bn of EU exports in Airbus row

US set to impose tariffs on $7.5bn of EU exports in Airbus row

  • 2 October 2019
Image copyright Getty Images
Image caption Airbus' A380 was unfairly subsidised, WTO says

The US has been given the go-ahead to impose tariffs on $7.5bn (£6.1bn) of goods it imports from the EU.

It is the latest chapter in a 15-year battle between the US and the EU over illegal subsidies for planemakers Airbus and rival Boeing.

The ruling by the World Trade Organization (WTO) will mean tariffs on EU goods ranging from aircraft to agricultural products.

Brussels has threatened to retaliate similarly against US goods.

What happens next?

US trade officials said the tariffs would come into effect 18 October, at a 10% rate on aircraft and 25% on other agricultural and industrial items.

The items will be selected from a list of $25bn worth of potential targets.

Meanwhile, the two sides are waiting for the WTO to decide on what tariffs the EU can impose against the US in retaliation for US state aid given to Boeing. That ruling is expected next year.

The European Commission, which has proposed tariffs on $20bn (£15bn) of US goods, said it hopes to reach a settlement.

"But if the US decides to impose WTO authorised countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same," the European Commission said.

How did this row start?

The US first filed the case in 2004, arguing that cheap European loans for Airbus amounted to illegal state subsidies.

The WTO decided in favour of the US, which subsequently complained that the EU and certain member countries were not in compliance with the decision, prompting years of further wrangling.

The US had sought to impose tariffs on about $11bn in goods. Though the WTO cut that figure to $7.5bn, Wednesday's decision still marks the largest penalty of its kind in the organisation's history.

The WTO's dispute settlement body must formally adopt the ruling but is not expected to overturn the decision.

Could there be a settlement?

US trade officials said the EU's settlement offer came years too late and did not resolve US concerns about ongoing subsidies. Imposing tariffs is intended to produce a better proposal, they added,

Governments across the EU, including the UK, called for the dispute to be resolved without the new tax.

"Resorting to tariffs is not in the interests of the UK, EU or US," the UK said. "We are working closely with the US, EU and European partners to support a negotiated settlement to the Airbus and Boeing disputes".

Bruno Le Maire, France's finance minister, said the country was "ready to respond firmly with our European partners".

"A friendly resolution to the Boeing/Airbus dispute is the best solution, and all the more so given that Europe could impose sanctions on the US next year," he said.

Germany's Chancellor Angela Merkel said: "A decision has been made based on international law through which Airbus will be affected unfortunately and we will see how the Americans will react".

Image copyright Getty Images
Image caption German Chancellor Angela Merkel says the EU will watch to see how the US reacts

How does this relate to Donald Trump's trade fights?

These tariffs are separate to US President Donald Trump's ongoing trade disputes with countries around the world.

Those were sparked in March 2018 when his administration announced tariffs of 25% on steel and 10% on aluminium imported into the US.

It prompted the EU to impose €2.8bn (£2.4bn) of duties on US goods such as bourbon whiskey, motorcycles and orange juice last June.

Mr Trump is also considering raising import duties on European cars.

Is there an economic impact?

While the Boeing-Airbus fight pre-dates Mr Trump, another wave of tariffs adds to concerns about global trade, which has slowed significantly amid the many disputes.

On Wednesday, Airbus chief executive Guillaume Faury warned that hitting aircraft with the import duties would disrupt the industry, raise costs and hurt the broader economy - including in the US.

Image copyright Getty Images
Image caption Airbus chief executive Guillaume Faury warned the tariffs could impact US jobs

Close to 40% of Airbus's aircraft-related procurement comes from US aerospace suppliers, which it said it supports 275,000 American jobs in 40 states.

"Airbus is therefore hopeful that the US and the EU will agree to find a negotiated solution before creating serious damage to the aviation industry as well as to trade relations and the global economy," Mr Faury said.

BBC economics correspondent Andrew Walker said tensions in global trade had already risen since President Trump took office.

"It's worth remembering that the International Monetary Fund and others see trade conflict as one of the biggest risks to the global economic outlook," he added.