U.S. Considers Expansion of Tariffs in Aircraft Trade Dispute

The U.S. Trade Representative (USTR) published a notification on Dec. 12, 2019, informing the public that it was reviewing the action being taken in the Section 301 investigation involving the enforcement of the United States' World Trade Organization (WTO) rights in the Large Civil Aircraft dispute. The notification includes two annexes: Annex I lists the specific products that are currently subject to additional duties of 10 percent to 25 percent, while Annex II lists products for which additional duties of up to 100 percent are proposed (but for which no additional duties have yet been imposed).

The review is likely in response to the WTO's rejection on Dec. 2, 2019, of the European Union's (EU) claims that it no longer provides subsidies to airplane manufacturing giant Airbus, prompting the U.S. to state that it would increase retaliatory tariffs on a wider range of European goods.

The USTR has invited interested parties to comment. In particular, it seeks to ascertain industry positions with regard to 1) whether maintaining or imposing additional duties on a specific product of one or more specific EU member states would be appropriate to enforce U.S. WTO rights or would be likely to result in the EU implementing the Dispute Settlement Body recommendations in the Large Civil Aircraft dispute, or in achieving a mutually satisfactory solution, and 2) whether maintaining or imposing additional duties on specific products of one or more specific EU member states would cause disproportionate economic harm to U.S. interests, including small or medium-size businesses and consumers.

Background

The USTR's notification is the latest move in what has been a long-running dispute between the United States and the EU. Each claims that the other's airplane manufacturer (i.e., Airbus and Boeing) is being unfairly subsidized. In 2006, the U.S. first filed a case with the WTO claiming that Airbus (jointly owned by Germany, France, Spain and the United Kingdom's BAE Systems) had received $22 billion in illegal subsidies. In June 2010, the WTO ruled in favor of the U.S. In September 2016, the WTO confirmed that the European governments not only failed to meet the compliance deadline to remedy $17 billion worth of past subsidies provided to Airbus but had since provided an additional $5 billion in illegal aid.

After it declined to engage in a settlement proposed by the EU in July 2019, the U.S. indicated that it expected to impose retaliatory tariffs of $11 billion per year on EU exports, covering airplanes, cheese, fish, wine, clocks and other products. This figure represents the same dollar amount of harm that the USTR estimated European subsidies cause each year to U.S. industry. The EU has requested that the WTO authorize $12 billion in countermeasures once the WTO issues its decision in the Boeing case, which is expected in early 2020.

Recent Developments and Considerations

In October, the U.S. was awarded the right to impose tariffs on $7.5 billion of annual EU imports in the case against Airbus. The U.S. imposed partial tariffs on most Airbus jets, as well as additional products such as cheese, olives and single-malt whisky. The EU Trade Commission said it would consider its next steps, including a possible appeal, while seeking an overall agreement.

However, the appeal process is unlikely. As of Dec. 10, 2019, the WTO Appellate Body ceased to function due to the U.S. blocking new appointments. Any appeals launched now will fall into a legal black hole. Without recourse to the highest court of international trade law, the rules-based trading system may weaken, with fewer protections for smaller economies.

In the meantime, companies should review the USTR's Federal Register notice to determine whether products that they import or rely on as components will be negatively affected by the proposed increases. If so, companies should submit comments to the USTR by Jan. 13, 2020.

Source: Jdsupra