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Explanator: The row of aircraft subsidies threatening the transatlantic trade war

By on April 19, 2021 0

(Reuters) – The United States will learn on Wednesday the annual value of European Union goods it is allowed to target with tariffs in a 15-year-old dispute at the World Trade Organization concerning illegal subsidies to the world’s largest aircraft manufacturers.

FILE PHOTO: A logo of the World Trade Organization (WTO) is pictured at their headquarters in Geneva, Switzerland, June 3, 2016. REUTERS / Denis Balibouse

Here’s what’s at stake.

What is the dispute about?

US and EU accuse each other of paying billions of dollars in subsidies to Boeing TO PROHIBIT and the European aircraft manufacturer Airbus AIR.PA in a pair of cases dating back to 2004. This is the largest dispute addressed by the Geneva-based WTO, which has supported some of the claims and dismissed others.

The contested subsidies include cheap government loans to Airbus from Britain, France, Germany and Spain and tax credits from Washington state in favor of Boeing. Affected planes include the Boeing 787 and the Airbus A380.

What the law says?

The WTO is trying to settle disputes over two types of subsidies:

1) “Prohibited subsidies” are considered the most damaging and are always illegal. They are directly linked to exports or the use of local rather than imported products. Despite the initial successes, neither side made this charge stand in the main case.

2) “Actionable subsidies” cause damage or “negative effects” to another country or its industry, but the burden of proof is higher and the compliance rules are less stringent. They are only illegal if the complaining nation can prove that it has been wronged. Such subsidies have dominated the thousands of pages of evidence and will lead to any retaliatory rights accorded to both sides.

Who won?

According to numerous testimonies, lawyers and several expert witnesses. The costs of the cases are estimated at over $ 100 million.

In the cases themselves, both sides won partial WTO rulings, but no one can agree on which side won. Each said their own subsidies were smaller or less damaging than those abroad. Both say they have removed all harmful aid, but the WTO says neither have fully complied.

Now the WTO arbitrators must decide the mutual claims of billions of dollars in damage inflicted on either side by “actionable subsidies” to determine the amount of tariffs allowed, starting with sanctions. US on EU products.

How much are the prices?

The United States is demanding tariffs on EU products with an annual trade value of $ 11.2 billion. The EU is demanding tariffs on US goods worth around $ 10 billion. People familiar with the matter say the WTO is set to allow Washington to impose around $ 7.5 billion in tariffs. The EU will know how much it can impose next year.

Which assets are vulnerable?

WTO rules allow countermeasures to be applied to all goods, but both sides will be pressured by domestic importers to be selective, especially when they hit non-aircraft industries.

Both sides have included planes, helicopters, wine, food and leather goods on their provisional target lists. The two lists exceed the value of the sought tariffs and will therefore have to be reduced.

What happens next?

A report from WTO arbitrators authorizing the United States to impose tariffs will be released on Wednesday. This must be signed by the Dispute Settlement Body of the WTO.

Its next regular meeting is scheduled for October 28, but the United States may request a special meeting no earlier than 10 days after the arbitrators’ report is released.

The U.S. Trade Representative should move quickly to publish a definitive list of European products he wants to target, a US source said.

Can the EU fight back?

Under WTO rules, the EU cannot retaliate directly, but it should get permission to impose its own tariffs when its parallel case catches up in 2020. There has been talk of the EU relaunching a war chest of $ 4 billion in tariffs from a previous case, to be used immediately, but this is sure to spark further debate.

Can a transatlantic tariff war be avoided?

There were several openings of talks, but none came to fruition. The dispute is moving from a phase where industry and WTO judges took center stage to a political phase widely seen as less predictable. Several sources say the United States, believing it is winning a tariff dispute with China, is ready to act, but some analysts still see a delay.

The EU hopes to persuade the WTO to reopen proceedings to allow it to demonstrate that it complies with previous rulings. The United States opposes it and doubts exist as to whether the EU’s initiative can delay sanctions.

What does this mean for air fares?

It depends on the penalties used and how the airlines pass on their costs. Imposing tariffs on Airbus or Boeing planes would increase airline costs in target countries and could increase tariffs, some airlines say. But tariff advocates say implementing WTO rulings would ultimately eliminate trade-distorting support and lower prices and fares for planes.

Written by Tim Hepher; additional reporting by Philip Blenkinsop and Andrea Shalal; edited by Jason Neely, Emelia Sithole-Matarise and Keith Weir

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