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men the aviation industry’s biggest crisis, a transatlantic battle looms over punitive tariffs on planes and other products. After the World Trade Organization (WTO) allowed Americans to impose punitive tariffs on Airbus imports for illegal subsidies in fall 2019, the return bus is now arriving.
The WTO gives the European Commission the option of a premium for Boeing planes and other US products. The annual volume can amount to almost four billion dollars (about 3.4 billion euros), announced the WTO.
The amount is significantly less than the twelve billion dollars initially claimed by Brussels. The amount is also less than the $ 7.5 billion that the US administration charges for European products. Washington originally asked for $ 11.2 billion. But this sum also evaporated.
After delays, the WTO announcement now enters the final round of the US presidential elections. The incumbent Donald Trump is likely to call the billions in tariff allowance for the EU a provocation.
It could also be presented as a point winner because the US can impose a higher amount of punitive tariffs than Europeans. Trump has repeatedly warned of a transatlantic trade war and announced that he will protect America’s top aircraft maker.
The now tabled WTO arbitration committee decision marks a preliminary line in a ping-pong game between the United States and Boeing and Europe and Airbus over illegal subsidies. The transatlantic dispute began almost 16 years ago to date. In its years of investigation, the WTO concluded that both aircraft manufacturers were unjustifiably raising billions.
Trump could extend punitive tariffs on Airbus jets
The current WTO arbitration ruling falls into an explosive phase. Trump may attempt to present himself as a helper to the domestic aviation industry shortly before the presidential election and further increase punitive tariffs on Airbus imports and other European products. Theoretically, it could impose 100 percent punitive tariffs on Airbus jets.
However, so far, the Trump administration has not sought a full confrontation. Since mid-March, a punitive 15% tariff surcharge has been required on Airbus aircraft. Furthermore, imports of wine, cheese and butter, especially from France, are becoming more and more expensive. The Europeans, however, have final assembly of the A320 models in the US and the surcharge does not apply to these aircraft.
With the WTO arbitration ruling, the EU Commission can now impose punitive tariffs on imports of Boeing or other American products starting October 27. That would be a week before the US presidential election.
But Brussels may be doubting and waiting for the outcome of the US elections. The EU has reportedly already sent the World Trade Organization a list of proposals for the punitive tariff shopping cart. Consequently, new taxes could apply to ketchup, auto parts, or game consoles, for example.
Whatever the outcome of this dispute: the heads of Airbus and Boeing, as well as the airlines, cannot have any interest in the increase in jet prices.
Therefore, behind the scenes, there is repeated talk of hope for a negotiated solution. The head of Airbus, Guillaume Faury, also said this openly after the WTO decision: “It is time to find a solution that will eliminate tariffs on both sides of the Atlantic.”
Aircraft manufacturer in deep crisis
Even a move among US presidents from Trump to Joe Biden should not lead the United States to give up its claim without a concession from Europeans, according to observers. Due to the corona pandemic with flight restrictions, airlines barely have money in their box anyway. As a result, demand from manufacturers has collapsed.
So far this year, Boeing had to register 932 cancellations, especially for the 737 Max model, which was still banned from flying after two accidents.
About 400 completed 737-Max models are parked on the tracks. In order not to produce more in stock, Airbus and Boeing have greatly reduced their production. They cannot be interested in having their planes penalized once they go to foreign clients.
For example, the new Boeing 737 Max models would become more expensive for the low-cost airline Ryanair. However, it can be assumed that airlines based in Europe are not prepared to pay these punitive fees themselves. They would probably charge Boeing for the surcharge.
As is said in industry circles, a negotiated solution to the transatlantic conflict over aircraft subsidies would make more sense than more years of power struggles. The industry needs new orders instead of arguments. Europeans have also stopped building the giant Airbus A380, whose subsidies have also contributed to the dispute before the WTO. The latest copy, an A380 for a major Emirates customer, rolled out of the assembly room a few days ago.
To reach a negotiated solution with the Americans, Airbus announced in July that it would fully comply with WTO requirements in the future. Specifically, Airbus agreed with the governments of Spain and France to pay higher interest on state advances for the development of long-haul A350 aircraft. The WTO had assessed these funds as illegal subsidies.
