US wins backing for tariffs on Europe in Airbus clash

WTO to rule on EU retaliatory rights in early 2020


Reuters October 02, 2019
WTO to rule on EU retaliatory rights in early 2020. PHOTO:REUTERS

GENEVA/ BRUSSELS/ LONDON:  

The United States won approval on Wednesday to slap import tariffs on $7.5 billion worth of European goods over illegal EU subsidies handed to Airbus, threatening to trigger a tit-for-tat transatlantic trade war as the global economy falters.

The decision by the World Trade Organization (WTO) pushes a 15-year corporate dispute over illegal support for transatlantic plane giants to the centre of caustic world trade relations and comes on top of a tariff war between Washington and Beijing. A panel of three WTO arbitrators said the United States had suffered harm equivalent to $7.5 billion a year from discounted European government loans for big jets like the Airbus A380, the world's largest airliner.

The decision - confirming a figure reported by Reuters last week - allows Washington to target EU goods also worth $7.5 billion, but bars tariffs on financial services. In response, the European Commission said US trade sanctions would be "short-sighted and counterproductive".

There was no immediate comment from US officials. The WTO had already found that both Europe's Airbus and its US rival Boeing received billions of dollars of illegal subsidies in the world's largest corporate trade dispute, a legal marathon dating back to 2004. The global trade body is due to decide early next year on the level of annual tariffs the EU can impose on US imports.

The focus of nervous markets will now shift to Washington, where President Donald Trump has taken an aggressive stance on international trade relations. The US Trade Representative is expected to move quickly to narrow down a preliminary list of goods in line for tariffs, two U.S. sources said. The agency's provisional list of products eligible to be targeted with tariffs covers European goods with an annual import value of $25 billion and ranges from Airbus jets themselves to helicopters, wine, spirits, handbags and cheese.

Broad selling amid worries over slowing global growth that had punished European stocks earlier on Wednesday accelerated as the ruling revived worries about damage to the already-ailing regional economy. The pan European STOXX 600 index was down 2.5%, on track for its worst day since December 2018. Airbus shares fell as much as 1.3% hitting their lowest since June 4, while Pernod Ricard extended losses and was down 0.2% at 1448 GMT.

'Lose-Lose' trade war

In the largest case ever handled by the WTO, Washington had requested permission to impose tariffs on up to $11 billion of EU goods. Brussels is pushing for tariffs of around $10 billion on American goods in the parallel process over Boeing subsidies.

On Tuesday, the head of Irish budget airlines group Ryanair urged the United States and EU to pull back from the brink of a tariff war and said neither side's aviation industry would survive a long dispute. While the level of tariffs amounts to less than three days' worth of trade between Europe and the United States, importers led by US airlines that buy Airbus jets have urged Washington to be selective when choosing industries to hit in order to avoid causing collateral damage to the US economy.

The WTO award in the dispute could fuel rising trade tensions, diplomats say. EU manufacturers are already facing US tariffs on steel and aluminium and a threat from US President Donald Trump to penalise EU cars and car parts. The EU has in turn retaliated.

The Trump administration has concluded tariffs were effective in bringing China to the negotiating table over trade, and in convincing Japan to open its agricultural market to US products. Washington is unlikely to skip the opportunity to implement tariffs in the case over aircraft subsidies, according to current and former US officials.

 

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