by Kevin O’Brien, Rod Hunter, Christine Streatfeild and Ross Denton
On October 2, 2019, the World Trade Organization (WTO) issued an
arbitration decision in European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/ARB. The
decision authorizes the United States to impose $7.5 billion in tariffs on EU
imports for EU subsidies to Airbus, making the ruling the largest in the WTO’s
history and providing a partial conclusion to one of the longest running WTO
disputes. The US Trade Representative (USTR) announced in a press release,
which is available here,
that the Trump Administration plans to impose tariffs beginning October 18.
USTR stated that the bulk of these tariffs will be applied to imports from
France, Germany, Spain, and the United Kingdom, and that the tariff increases
will be limited to 10 percent on large civil aircraft and 25 percent on
agricultural and other products. The European Union is awaiting a damage award
in a WTO counter-complaint against the United States and Boeing where it has
sought authorization to levy duties on $12 billion worth of US products.
Background of the Dispute
The Boeing/Airbus litigation dates back to 2004 when the United States
initiated WTO proceedings arguing that EU subsidies to Airbus violated the WTO
Agreement on Subsidies and Countervailing Measures and the 1994 General
Agreement on Tariffs and Trade. Nine months later, the European Union initiated
proceedings alleging that the United States was providing WTO-inconsistent
subsidies to Boeing. In the years since, the WTO has ruled that the United
States and European Union both provided infringing subsidies. The United States
and European Union have each made changes to comply with these rulings, but the
WTO has found continued infringements. A decision on the EU case regarding US
subsidies is expected in the coming months.
Potential US Measures
The United States will receive authority to impose the retaliatory tariffs as
early as this month, once the WTO’s Dispute Settlement Body formally accepts
the arbitration award. In its press release, USTR announced that the United
States has requested the WTO to schedule a meeting on October 14 to approve a
US request for authorization to take the countermeasures against the European
Union. Under Section 301 of the Trade Act of 1974, the USTR has the discretion
to impose tariffs on EU products for violations of the WTO trade rules, or USTR
could use the arbitration decision as a starting point for further negotiations
with the European Union. USTR has published two lists of EU products that could
be the target of the duties that cover more than $20 billion worth of EU
exports, which are available here
and here.
The key EU exports that USTR will likely target include wine, cheeses,
motorcycles, aircraft parts, and certain helicopters. Additional listed
products include seafood products, produce, certain clothing and textile
products, glassware, and certain metal products and metal alloys. USTR is not
required to impose tariffs on the full amount authorized by the WTO, or to
apply all the tariff increases at one time.
The UK Department for International Trade issued a press statement following
the ruling stating that the United Kingdom and other EU Member States subject
to the case had already complied with the WTO ruling and so did not see a basis
for the United States to retaliate at this point. The United Kingdom also
pointed out that in a corresponding procedure brought by the European Union
against the United States, it was clear that the United States had taken no
steps to comply, and so retaliation against the United States would be
justified.
Implications for the WTO System and US-EU
This decision and the imminent decision in the EU case will bring to a head a
long running dispute that has roiled transatlantic relations for decades. The
United States and the European Union could eliminate the other’s threat of
retaliation if it were to modify its legislation to comply with the WTO
rulings. Short of that, the United States and the European Union will be able
to impose retaliatory tariffs on imports from the other, or to negotiate a
resolution between the parties.
President Trump, who calls himself “Tariff Man” and argues that foreigners pay
tariffs imposed by the United States, may view this decision in the US case as
providing leverage with the European Union. However, an authorization to
retaliate in the EU case will likely tee up a stand-off. It may not matter much
in practice if the United States’ retaliation authorization is substantially
larger than the European Union’s, given the large amount of trade covered by
the authorizations. Increased import tariffs would harm exporting businesses
and their customers in both America and Europe, and escalating tensions could
unsettle markets in a time of growing economic uncertainty. As a result, there
may be increased interest in finding a negotiated path forward.
One clear winner is the WTO’s appellate body. The United States has criticized
the appellate body and tied up nominations of new judges such that the
appellate body will soon cease to have a quorum necessary to operate. In this
case, the appellate body has, as designed, made the legal determinations necessary
to ascertain WTO members’ rights. These determinations have cleared the way for
the protagonists, the United States and European Union, to find a resolution.
