European Union member states will start slapping a 15% tariff on Boeing aircraft from tomorrow, Tuesday, November 10. This follows a World Trade Organization ruling in late October that authorized the EU member states to take countermeasures against what it called “illegal US subsidies to aircraft maker Boeing.”
A trade dispute that goes back 15 years
The origins of this dispute can be traced back to 2005 when the EU took issue with the US over prohibited and actionable subsidies provided to US producers of large civil aircraft. In the EU’s sights were a Washington State tax program that allegedly unlawfully subsidized Boeing, NASA and US Department of Defence procurement contracts that benefited Boeing at Airbus’s expense, and an allegedly illegal US tax concession that supported exports.
The EU argued that these benefits breached the rules of the Agreement on Subsidies and Countervailing Measures and GATT 1994.
In 2019, the World Trade Organization’s Appellate Body (a panel that hears disputes between WTO members) agreed with the EU. It ruled the US had not taken appropriate action to comply with WTO rules on subsidies. Further, and despite previous rulings, the US continued to illegally support Boeing to the detriment of Airbus.
On October 26, the WTO gave the EU the tick of approval to launch countermeasures against the US. Those countermeasures, in the form of tariffs, are coming into effect tomorrow.
The EU tariffs will impact a range of US exports, including civilian aircraft manufactured by Boeing. All up, the tariffs are worth about US$4 billion.
A Boeing spokesperson told Simple Flying the decision was disappointing.
“Instead of escalating this any further, we hope that Airbus and the EU will take meaningful action to resolve this trade dispute.”
Excluded from the tariff are Airbus planes and parts manufactured in the US. This includes the A220s produced in Mobile, Alabama.
Airbus found wanting in separate WTO dispute
While this may seem like a win for Airbus and the EU, it hasn’t gone all their way. Last year, the WTO found Airbus received illegal subsidies via what’s known as the Repayable Launch Investment program. The program unfairly subsidized A350 and A380 production. As a result, the US decided to impose tariffs worth up to $7.5 billion on goods out of the EU.
According to the EU, tomorrow’s new tariff regime is an unfortunate but necessary action.
“We have made clear all along that we want to settle this long-running issue. Regrettably, due to lack of progress with the U.S., we had no other choice but to impose these countermeasures,” said EU Executive Vice President Valdis Dombrovskis.
“We call on the U.S. to agree to both sides dropping existing countermeasures with immediate effect, so we can quickly put this behind us. Removing these tariffs is a win-win for both sides.”
As the WTO neared their conclusion, both Boeing and Airbus have moved to remove subsidies and other financial support mechanisms that had caught the WTO’s attention.
Nonetheless, Airbus said it welcomed the EU Commission’s decision to impose tariffs on US imports. An Airbus spokesperson told Simple Flying.
“Airbus supports all necessary actions to create a level-playing field and continues to support the EU’s commitment to finding a negotiated settlement of this long-standing dispute to avoid lose-lose tariffs.”
As the EU’s Valdis Dombrovskis noted, tariffs benefit nobody over the long term and can substantially harm industries and economies. He said removing the tariffs would foster transatlantic co-operation and help boost growth.
What do you think? Are tariffs detrimental to the airline industry or a necessary evil? Post a comment and let us know