Oct 04, 2019 - 3:00pm

Finding a Landing Zone: The WTO, the EU, and Aircraft Subsidies


Senior Vice President for International Policy

A World Trade Organization (WTO) arbitrator on October 2 issued its decision in the nearly 15-year-old dispute against the EU dryly titled “Measures Affecting Trade in Large Civil Aircraft.” The arbitrator authorized the United States to impose “countermeasures”—that is, tariffs—on about $7.5 billion of imports from the European Union in response to EU government support for Airbus.

This is a dispute that has dragged on for nearly 15 years, but it has now come to a head: The Office of the U.S. Trade Representative has indicated it will proceed with these tariffs on October 18.

USTR has released a list of imports from the EU to be subjected to tariffs. The USTR statement indicates tariffs will be imposed on Airbus aircraft and a range of other products including spirits, wine, olive oil, cheeses, apparel, and hand tools.

USTR notes that although it has received from the WTO “the authority to apply a 100 percent tariff on affected products, at this time the tariff increases will be limited to 10 percent on large civil aircraft and 25 percent on agricultural and other products.”

Those are the facts in the dispute. The question is: What is the best path forward?

First, there’s agreement that the WTO is the appropriate venue to address trade disputes. Both the outgoing EU Trade Commissioner Cecilia Malmström and her successor Phil Hogan, who takes office November 1, have recently reiterated the EU’s commitment to the WTO and multilateral rules. Obviously, the United States has used the WTO dispute settlement process to get to this point.

For our part, the Chamber has long agreed it is appropriate for trade disputes to be addressed by the WTO’s Dispute Settlement Body.

Second, there’s broad agreement that tariffs will inflict economic harm. Malmström stated this week that the application of tariffs would inflict “damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time.”

In the United States, concern about the impact of tariffs has grown. The U.S. economy has recently slowed, with declining agriculture and manufacturing indices drawing broad concern. Surveys show business executives in many sectors expressing worries about the effects of tariffs—and support for efforts to ratchet down trade tensions.

Third, the parties to the dispute are expressing a desire to resolve the matter via negotiations. U.S. Trade Representative Robert Lighthizer stated on October 2 that the United States expects “to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.”

Malmström also expressed a desire to reach a negotiated outcome: “The European Commission has consistently communicated to the United States that the European Union is ready to work with them on a fair and balanced solution for our respective aircraft industries.”

The USTR statement calls attention to the fact that it is proceeding with lower tariffs than it might have done, for now. USTR’s statement observes that the United States “has the authority to increase the tariffs at any time, or change the products affected.”

Surely this is intended to send a message of urgency: Now is the time to negotiate and swiftly reach a deal.

These negotiations are a chance to look to the future and set enduring rules in this area. New market entrants in the large civil aircraft sector are beginning to emerge. Addressing these issues now offers potential benefits for all concerned.

The Chamber is hopeful that the United States and the EU can reach a negotiated outcome to this dispute in short order that will end WTO-inconsistent subsidies to large civil aircraft and put to rest the threat of tariffs on transatlantic trade.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.