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EU-US Trade Tensions Persist, Yet Hope Remains for Adoption of Bilateral Pact

On 8 April 2019, the US threatened to impose tariffs amounting to USD 11.2 billion on a range of EU products, as a countermeasure to illegal subsidies provided by the EU to Airbus. The ultimate purpose, in the words of US Trade Representative Robert Lighthizer, is “to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft”. In response, the EU announced that it is preparing to hit back by retaliating against the US provision of subsidies to Boeing in a parallel case, in particular through the imposition of fresh tariffs worth more than EUR 19 billion. There is hope, however, for both trading blocs: it was reported on 15 April that the EU Council of Member States’ ministers has approved mandates for the opening of negotiations with the US on elimination of tariffs for industrial goods and on conformity assessment, even though France is said to have voted against this.

The office of the United States Trade Representative (USTR) recalled in a statement on 8 April that the World Trade Organization (WTO) has repeatedly found European Union aid to Airbus to be illegal, due to adverse effects caused to the United States. Specifically, the WTO has ruled that the EU had failed to end subsidies provided to two aeroplane programmes. The USTR has thus drawn up a preliminary list of products being imported from the EU, against which sanctions would be imposed for the EU’s failure to comply with the decisions of the WTO dispute settlement body.

A vast number of goods are included, reportedly running into 14 pages. These include large commercial aircraft and parts, food products, clothing and clocks. However, the final amount of duties is to be determined by a WTO arbitrator later this year. A full product list will subsequently be announced, the USTR said.

A day after the announcement, a European Commission spokesperson proclaimed that the EU is preparing to adopt appropriate measures against subsidies provided by the US to Boeing. Last month, the WTO’s Appellate Body confirmed a Panel’s findings that Washington had not removed the illegal aid given to the US aerospace company. The EU will therefore ask for a WTO arbitrator’s decision regarding the amount of any countermeasures in this case and act accordingly. It is nonetheless expected that on 17 April the European Commission will publish, for public consultation, a list of US-origin products worth around EUR 19 billion which could be affected by fresh tariffs.

Furthermore, Brussels has found the punitive tariffs, proposed by Washington on 8 April 2019, to be disproportionately high. Airbus also expressed an opinion on the issue, seeing no legal basis for the steps undertaken by the US, in view of the fact that Airbus had, it claimed, taken the necessary measures with respect to the subsidies it had received.

For more than 14 years, the EU and US have accused each other of providing illegal aid to aeroplane giants European Airbus and American Boeing, to foster their competitiveness in the world jet business. This has resulted in the longest and most complex WTO dispute. Both Washington and Brussels have been commanded to end subsidies amounting to billions of dollars, yet both sides have mutually claimed non-compliance by the other with these orders.

The US President Donald Trump’s administration has frequently used punitive tariffs as a negotiating tactic, and targeting the EU is no exception. In 2018, duties were levied by the US on steel and aluminium, which has resulted in retaliatory measures imposed by the EU. Trump has, moreover, threatened to put a 25% tariff on EU-origin cars.

In July 2018, Brussels and Washington had pledged no new tariffs and commenced work on a possible trade pact on non-auto industrial goods. However, opposition from the French government blocked the voting on a draft mandate for the opening of trade talks. On 11 April 2019, EU diplomats managed to reach an agreement in principle, following a number of amendments. France’s allies in the Council thus agreed that there must be guarantees with regard to the environment during the negotiations and to declare that discussions on the TTIP (a previously planned EU-US trade agreement), which was a far more ambitious trade deal, was “obsolete and no longer relevant”. This allowed the EU Council to approve the draft mandate on 15 April, with 26 Member States supporting the initiative, France voting against and Belgium abstaining.

Consequently, the European Commission is now authorised to start discussions on two agreements with the US. The first concerns the removal of tariffs for industrial goods (excluding agricultural products), while the second would aim to eliminate non-tariff barriers by facilitating businesses to prove their products conform to technical requirements both in the EU and in the US. Sustaining a high level of protection in the EU will, at the same time, remain a key priority. In the event that the negotiations arrive at a positive outcome, the final agreements will need be concluded by the EU Council, with the consent of the European Parliament. An essential condition in that regard is, however, that the current duties on EU exports of steel and aluminium be eliminated. The Commission will, moreover, suspend discussions if Washington were to impose further sanctions against European products.

The EU-US limited trade agreement is strongly desired by Germany in order to pacify the US administration and avoid the potential imposition of auto tariffs which would have a detrimental effect on Germany’s substantial exports. Following the approval of the Commission’s mandates, it appears probable that a feasible solution to the stalemate situation will be found. Insofar as pursuing a trade deal is a central component of the truce negotiated in July 2018, this progress could mean that EU-US trade peace will be restored, with the recent threat of tariffs from the Trump administration being scrapped.

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