Boeing trade case sets up US to impose tariffs on EU

A World Trade Organization (WTO) ruling on Tuesday is opening the door for the United States to impose tariffs on European products, in what is likely the end of the 14-year-old trade battle.

A WTO appellate body found that the European Union and four of its member countries — the United Kingdom, France, Germany and Spain — didn’t comply with prior rulings over subsidies, which gave Airbus an unfair advantage on the world market and hurt U.S.-based Boeing.

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The decision clears the way for the United States to levy billions in tariffs on EU products over the harm done to Boeing over subsidies provided to Airbus used to launch its A380 and A350 jets.

“This report confirms once and for all that the EU has long ignored WTO rules, and even worse, EU aircraft subsidies have cost American aerospace companies tens of billions of dollars in lost revenue,” said U.S. Trade Representative Robert Lighthizer.

“Unless the EU finally takes action to stop breaking the rules and harming U.S. interests, the United States will have to move forward with countermeasures on EU products,” Lighthizer said.

The decision could further ramp up tensions between the U.S. and Europe, which have been stoked by President Trump’s criticism of EU trade policies, his refusal to provide a permanent exemption for tariffs on European steel and aluminum imports and last week’s decision to leave the Iran nuclear deal.

Boeing may lose upward of $20 billion in aircraft sales because of the U.S. withdrawal from the nuclear pact.

“Today’s final ruling sends a clear message: Disregard for the rules and illegal subsidies are not tolerated,” said Dennis Muilenburg, Boeing chairman, president and CEO.

“The commercial success of products and services should be driven by their merits and not by market-distorting actions,” Muilenburg said. “Now that the WTO has issued its final ruling, it is incumbent upon all parties to fully comply as such actions will ultimately produce the best outcomes for our customers and the mutual health of our industry.”

Retaliation would go well beyond products from those four countries and will apply to any EU products the United States chooses until they are satisfied there is compliance.

Bob Novick, a legal counsel for Boeing, told reporters that the subsidies led to lost sales and that the United States will be free to decide over the next several months what European products will be targeted for tariffs to apply maximum pressure to ensure compliance.

Novick didn’t put a price tag on the countermeasures but said they would be in the billions every year. The ruling found that the two planes received subsidies of $9 billion.

The tariffs won’t likely to be imposed on planes, he said.

The tariffs could be scheduled as early as 2019 and would likely be the largest-ever WTO authorization of retaliatory tariffs, Boeing said.

It is expected that U.S. tariffs will be authorized up to the amount of annual harm.

The European Commission argued that the WTO decision rejected most U.S. claims and was its victory.

“Today the WTO Appellate Body, the highest WTO court, has definitively rejected the U.S. challenge on the bulk of EU support to Airbus, and agreed that the EU has largely complied with its original findings,” said Cecilia Malmstrom, the EU’s trade commissioner. “Significantly, it dismissed the vast majority of the U.S. claims that this support had damaged Boeing’s aircraft sales.”

The EU will now take “swift action to ensure it is fully in line with the WTO’s final decision in this case,” she said.

The WTO report specifically says that the Airbus subsidies hurt Boeing through lost sales of large widebody jets to several major global airlines and in markets such as the European Union, Australia, China and the United Arab Emirates.

“I applaud the Trump administration and USTR’s legal team for winning one of the largest trade disputes in modern history,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) said in a statement.

“For decades, the EU has flouted its WTO commitments at the expense of American aerospace workers and companies. That ends today,” he said. 

The WTO appellate body upheld the compliance panel’s finding in 2016 that Airbus paid a lower interest rate on financing for the development of its latest aircraft, the A350, than it would have obtained on the commercial market, and that this below-cost financing provided by the French, German, Spanish and U.K. governments provided a benefit to Airbus that constituted subsidies.