The United States (US) and the European Union (EU) continue to enforce retaliatory tariffs against each other’s products as a result of the long-standing Airbus and Boeing subsidy dispute spanning over 17 years. However, European Director-General for Trade, Sabine Weyand, aims to bring an end to the enduring battle with the help of new negotiations with the Biden administration.
Both the US and the EU raised allegations against each other before the World Trade Organization (WTO) claiming that the other either directly or indirectly subsidizes their domestic civil aircraft industry, referring to Boeing and Airbus, respectively. The US alleged that the United Kingdom (UK), France, Germany, and Spain, provides subsidies to Airbus SE and Airbus affiliated companies, which is inconsistent with their obligations under the GATT 1994. Similarly, the EU alleged that Boeing benefits from subsidies from US government agencies, such as, the National Aeronautics and Space Administration, and the US Department of Defense. The EU also claimed that Boeing receives subsidies by way of tax reductions and exemptions from the US.
Timeline of events
In October 2019, the WTO found in favor of the US’s allegations and authorized the US a retaliation award of $7.5 billion against the EU. Subsequently, the Office of the United States Trade Representative (USTR), under the Trump administration, published a list of 158 eight-digit HS product lines subject to additional duties under section 301 of the Trade Act 1974 (the Trade Act), with the list mainly targeting products from France, Germany, Spain, and the UK, specifically, aircrafts, whiskies, liqueurs, wine, food, and agricultural products. Pursuant to the Trade Act, USTR is required to periodically revise the list of products subject to retaliation in accordance with the WTO’s Dispute Settlement Body’s (DSB) recommendations, also known as “Carousel Retaliation.” Thus, USTR made revisions to the list in February 2020, effective in March 2020, increasing the rate of additional duties on large civil aircrafts to 15%, and modified other products that were subject to 25% duties by removing prune juice and adding knives.
In July 2020, Airbus and the EU adopted measures to ensure WTO compliance with their contracts. However, the USTR asserted that the measures did not fully implement the DSB’s recommendations. As a result, the USTR made further revisions to its tariffs in August 2020, changing the list of non-aircraft products to be subject to additional duties effective September 1, 2020.
Regarding the EU’s dispute against the US, in September 2020, the WTO authorized retaliatory tariffs to the amount of approximately $4 billion. Consequently, the EU imposed additional tariffs on US aircraft, agricultural and other products in November 2020.
Escalation of the retaliation
When the EU imposed its retaliatory tariffs against US products, the USTR issued a statement stating that the “EU has no legal basis to impose aircraft tariffs” and raised concerns regarding the EU’s methodology in exercising the WTO’s authorized retaliation. USTR claimed that the EU incorrectly used a benchmark reference period of August 2019-July 2020, which included trade volumes that had been impacted by the COVID-19 global pandemic, and the EU should have used data from the previous calendar year as the US had. In addition, the US noted that the EU excluded UK trade in its retaliation calculations because of Brexit. However, the UK remained in the EU customs union until December 31, 2020, meaning US products exported to the UK were subject to additional EU tariffs.
In response, the USTR revised its tariffs on EU products by adjusting the reference period to match that of the EU’s methodology, and adding a number of new products subject to additional 25% duties effective January 12, 2021. The USTR’s modification was said to ensure the actions were “proportionate to each other.” The new products included “aircraft manufacturing parts from France and Germany, certain non-sparkling wine from France and Germany, and certain cognac and other grape brandies from France and Germany.”
Retaliation under the Biden administration
Speaking at an event with the Center for Strategic and International Studies, Weyand expressed hope that the EU would negotiate and work with the Biden administration to suspend the tariffs, bringing an end to their tumultuous trade war. Weyand was optimistic that a settlement could be reached within the first 6 months of Biden’s presidential term. In the meantime, the tariffs on both sides of the Atlantic remain firmly in place, and the USTR is still able to review and revise in whole or in part, the list of products subject to duties.
If you have any questions or would like more information about retaliatory tariffs, and US trade with the EU, contact an attorney at Barnes, Richardson & Colburn LLP.