The future of the Airbus-Boeing dispute

The EU and US need to come together and reach an agreement on the future of not only the aviation sector but of their trade relationship altogether.
Source: Fotolia #72010420

By Cesar Guerra

Cesar Guerra is a Partner and Director for Trade Policy at Euraffex.

11 May 2021

The EU and the US have won disputes at the WTO against each other for the application of subsidies to their aviation industry, commonly known as the Airbus-Boeing dispute. This has irritated not only both governments but many companies exporting goods from both sides. Companies unrelated to airplanes do not conceive facing additional tariffs due to a WTO ruling on illegal subsidies linked to that industry.

Retaliatory measures imposed by both sides amount to $11.5bn. On 11 March 2021, both parties suspended the additional tariffs on certain products in their bilateral trade for four months. The specific objective of the suspension was to find a long-term solution that guarantees the sector will be free of state aid that distorts trade, but the overarching geopolitical aim is to show the EU and the US can improve their troubled trade relations.

Technical negotiations between the EU and the US are ongoing and the parties meet regularly. There is a positive environment thanks to the excellent relationship built between United States Trade Representative Ambassador Katherine Tai and Executive Vice-President Valdis Dombrovskis. However, as expected, the issue has proven difficult and reimposing sanctions in case the negotiations fail will affect trade and competitiveness in many companies. In the world of politics and trade, nothing is certain until the deal is signed.

“The EU and the US need to show the world they are ready to team up on the multilateral arena. They need each other for the Paris Agreement and for reform of the WTO”

When analysing the situation, there are two important elements to bear in mind that will influence the outcome:

1) The EU-US Summit on 14 June. President Biden will visit Brussels and meet with European Commission President Ursula Von der Leyen and European Council President Charles Michel. This meeting could provide political guidance in case of a lack of progress. Likewise, in an optimistic scenario, this can be the perfect opportunity to announce a final agreement to the Airbus-Boeing dispute. The second option is less likely as the Parties would try to extract as many concessions as possible from each other, right up until the deadline.

2) As a sign that US trade policy entails protectionism regardless of who is in power, the world is still facing Trump’s legacy. The Biden Administration has refused to eliminate the additional tariffs imposed in 2018 for “national security concerns” on steel and aluminium products, based on the US Section 232. This is a reminder that EU expectations on tackling issues with the US could always hit a wall. For this reason, the EU is expected to apply a second measure against the US in June 2021. The current value of the total retaliation applied by the EU amounts to €6.4bn.

It is unknown how the US would react to this action, but USTR Ambassador Tai recognised the need to work with the EU on the larger issue of the global overcapacity in steel and aluminium production. She told the US Senate that the measure has had a positive impact on US steel production, but she is mindful of the frictions this measure generates with trading partners, in particular the European Union.

The EU and the US need to show the world they are ready to team up on the multilateral arena. They need each other for the Paris Agreement and for reform of the WTO. It would be very hard to explain to the world, especially China, that the EU and the US were not able to reach an agreement on aircraft subsidies, but they want countries to compromise on a new set of disciplines to level the playing field on state aid in the WTO.

“Restoring retaliatory measures on Airbus-Boeing would be a recognition that EU expectations of the Biden Administration have failed after all”

On top of that, the pressure from domestic stakeholders on each side of the Atlantic provides additional incentives to find creative solutions. European and American trade associations have submitted a letter to their governments asking them to leave products unrelated to aviation out of the scope of the retaliatory measures. However, sensitive, and emblematic products will always remain on the radar of policymakers when it comes to stepping on the counterpart’s toes.

The world needs the EU and the US reach a comprehensive agreement with specific commitments that prevent governments establishing unfair competition in the aviation sector before the deadline. If this is not possible, I do not see any other scenario other than prolonged negotiations extending the suspension of measures. Restoring retaliatory measures on Airbus-Boeing would be a recognition that EU expectations of the Biden Administration have failed after all.

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