WTO approves billions of euros in EU retaliatory tariffs against the US

The trade dispute between the European Union and the US over subsidies to the aircraft manufacturers Airbus and Boeing, which has been ongoing before the World Trade Organization (WTO) for almost 16 years, has come – at least for the time being – to an end. On 13 October 2020, WTO arbitrators allowed the EU to impose annual tariffs of almost USD 4 billion (approx. EUR 3.4 billion) on US products (Ref.: WT/DS353/ARB). However, the WTO went significantly below the USD 8.6 billion (approx. EUR 7.3 billion) originally requested by the EU. On this basis, the EU has now introduced retaliatory tariffs against the US, which have been in force since 10 November 2020.

Background

Back in 2004, the US had brought an action before the WTO against EU subsidies to Airbus. The EU responded quickly with proceedings against US subsidies to the US aircraft manufacturer Boeing. In 2018 and 2019, the competent WTO panels of judges found the state aid to both Airbus and Boeing to be contrary to WTO rules, ruling that the subsidies in question were in breach of the WTO rule that subsidies must not cause serious harm to the interests of another WTO state (Articles 5(c), 6.3(a)-(c) SCM Agreement).

In both sets of proceedings, arbitrators were to decide to what amount the claimant states are allowed to compensate for the defendant’s infringements of WTO law with retaliatory tariffs in each case. In 2019, for the proceedings against the EU, this tariff limit was already set at a record amount of approx. EUR 6.8 billion (see our News of 11 October 2019). The US government then imposed import tariffs ranging from 10% to 25% on aircraft and aircraft parts as well as on a large number of other products, and in some cases increased them again at the beginning of 2020. The current ruling on the possible level of EU retaliatory tariffs has brought the WTO proceedings to a close for the time being. However, the EU has already made a request to the WTO to find that it has ceased its violation of WTO rules. If this request were granted, the permission given to the US to impose retaliatory tariffs would no longer be valid. No decision has been made yet. However, the US also claims that the contested subsidies to Boeing no longer exist.

Consequences

Immediately after the decision, the EU initially took a de-escalating approach and decided not to impose corresponding tariffs, in order to wait for ongoing settlement talks with the US on the US tariffs imposed in 2019. As the negotiations did not succeed, the European Commission has now introduced retaliatory tariffs on American goods with effect from 10 November 2020 (Implementing Regulation 2020/1646 of 7/11/2020, OJ EU, 9/11/2020, L 373, 1). This concerns aircraft (15%) and various agricultural and industrial products (25%). Commission Vice President Valdis Dombrovskis, responsible for trade, stressed that although the current negotiations had not been fruitful, the EU remained willing to negotiate and, in particular, that the suspension of the US tariffs introduced following the WTO ruling in 2019 would lead to the EU also suspending its new tariffs.

In a statement after the WTO ruling, US President Trump warned the EU against imposing tariffs and announced retaliatory measures if it did so. With its most recent approach, the EU makes it clear that it is not waiting to see whether the US trade policy will change under President-elect Biden. This may be due to considerations that the introduction of tariffs allowed by the WTO is a way of gaining leverage in negotiations with the US in the settlement and trade talks.