The feud — one of the longest-running in WTO history — saw transatlantic allies impose billions of dollars in tariffs. Why is it taking so long for Brussels and Washington to end the plane subsidies feud?
The EU and the US have agreed to extend a truce that will hold back punitive tariffs in their nearly two-decade-old dispute over aircraft subsidies to Airbus and Boeing as part of a wider effort by the two traditional allies to restore trade ties.
“This really opens a new chapter in our relationship as we move from litigation to cooperation on aircraft,” said EU chief Ursula von der Leyen
The feud that reached the World Trade Organization in 2004 caused both sides to impose tariffs on $11.5 billion (€9.5 billion) on each other’s goods.
The rights were suspended for four months in March this year as the EU and the US worked to resolve the dispute. Both sides have now agreed to keep the tariffs suspended for five years while they work on a deal on which subsidies to allow.
What prompted the truce?
The deal comes amid wider pressure from US President Joe Biden to mend ties with European allies, which have been badly dented during the tenure of his predecessor Donald Trump, thanks in part to punitive levies on billions of euros worth of European goods.
The COVID-19 pandemic that pushed the global economy into its worst recession since World War II has paved the way for negotiations. The airline sector is one of the hardest hit and much of international travel is still suspended.
Imposing punitive tariffs on struggling aircraft and parts manufacturers would only worsen their plight. The agreement also aims to allow Western aircraft manufacturers, Airbus and Boeing, to focus on the threat posed by Chinese state-owned aircraft maker Comac, which seeks to end their duopoly in the civil aviation industry. What is the dispute about?
The European Union and the United States claim that each other’s aircraft manufacturers are unfairly subsidized. It was the US who first filed suit with the World Trade Organization (WTO) in 2004, claiming that Airbus, jointly owned by Germany, France, Spain and Britain’s BAE Systems, spent $22 billion (€19.4 billion). in illegal subsidies.
US officials estimate that the subsidies had resulted in an economic benefit of more than $200 billion. The EU retaliated with a backlash alleging that Boeing had received $23 billion in “trade-distorting” subsidies in the US, mainly for its research and development projects.
What did the WTO think? Over the years, the WTO has ruled that both sides have unfairly subsidized their aircraft manufacturers.
In 2018, the WTO Appellate Body upheld a 2016 ruling that the EU had supported Airbus with subsidized loans to develop new aircraft – the A380 superjumbo and the two-aisle A350. The world body also found that the loans, which had to be repaid on delivery, amounted to illegal aid.
A year later, the WTO handed the EU a victory in its backlash, saying America’s favorable contract terms and tax breaks for Boeing had hurt the sale of Airbus. Interestingly, both the US and the EU claimed victory upon hearing the decisions.
The WTO, which ruled on the US sanctions request, allowed the US in October 2019 to impose tariffs on up to $7.5 billion worth of EU goods, the largest accolade in the history of the trade organization but well below the US request.
The US trade office had estimated the damage from EU subsidies to Airbus at $11 billion in trade per year. In 2020, the WTO allowed the EU to impose tariffs worth $4 billion on US goods.
That figure fell short of the EU’s estimate of $12 billion in damage suffered by Airbus from US support to Boeing. Meanwhile, the US abolished a preferential tax rate for the aerospace industry last year to comply with WTO rules.
It later said there was no valid basis for the EU to retaliate against US goods now that the subsidy had been withdrawn. For its part, in July 2020, Airbus agreed to change the terms of the repayable launch aid granted by France and Spain for the development of the A350 aircraft.
The European Commission said the changes meant the bloc was fully in line with WTO rulings in the dispute and there was no reason for the US to maintain its countermeasures against EU exports.