“Trade wars are good and easy to win.” For proof, look no further than the 15-year-old World Trade Organization case that the United States filed against the European Union over subsidies to Airbus. The case was pretty much overlooked during that gestation period, but the result has finally been announced and it’s not pretty.
Case Background
Let’s start with the latest headlines. The WTO has authorized the U.S. to impose additional tariffs on imports from the EU, following completion of dispute resolution and Appellate Body proceedings. The rationale is that the EU and certain of its member states (France, Germany, Spain and the United Kingdom) provided improper subsidies to large civil aircraft produced by Airbus. The subsidies included preferential financing, loan forgiveness, and research and development grants. Some of these qualified as export subsidies, a major breach of WTO requirements. The Appellate Body confirmed that the subsidies had an adverse effect on U.S. trade interests, by permitting Airbus to gain aircraft sales at the expense of its U.S. competitor, Boeing.
After finding these violations, the WTO provided the EU with an opportunity to cure them, either by terminating the subsidies or removing their adverse effects. The EU failed to do so, leading the WTO to authorize “countermeasures” by the U.S. This means that the United States is permitted to withdraw trade concessions (i.e., agreed-upon tariff rates) commensurate with the subsidies’ adverse impact on U.S. trade interests, calculated at roughly $7.5 billion.
Additional Duties to Be Effective on October 18, 2019
My thumbnail sketch cannot do justice to a documentary record that dwarfs War and Peace in its size and scope. And let’s face it, most of us aren’t fascinated by WTO minutiae; I’ve followed this case only because I was involved in its GATT predecessor. For practical purposes, what’s important is the outcome: effective on October 18, 2019, additional duties on imports from the EU in the amount of “10 percent on large civil aircraft and 25 percent on agricultural and other products.”
Importers of items that are not on the initial list shouldn’t rest too easily, given USTR’s statement that “The U.S. has the authority to increase the tariffs at any time, or change the products affected.” We may expect tariff rate and product adjustments calculated to cause maximum disruption to importers of EU products. For now, importers of affected articles should keep an eye on the calendar, and perhaps consider how good and easy to win trade wars really are. October 18 is fast approaching.
