WTO Authorization of Tariff Retaliation Against the European Union for Subsidies to Airbus — A True Victory for the United States?

December 3, 2019 by Editor

By: Chloe Wang

The American multinational aerospace corporation, Boeing, and the European multinational aerospace corporation, Airbus, “roughly split the market for commercial jets.” They are primary competitors against each other and have continuously protested against the subsidies each receives from their supporting political entities, namely, the United States and the European Union.

On October 6, 2004, the United States requested consultations with the Governments of the United Kingdom, Germany, France, and Spain, along with the European Communities in the World Trade Organization (WTO) to discuss how the European communities’ subsidies to Airbus are inconsistent with their obligations under the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the General Agreement on Tariffs and Trade 1994 (GATT 1994). The case developed into panel evaluations which were stuck in the WTO for fifteen years, until finally, on October 14, 2019, the WTO members agreed “to authorize the United States to impose countermeasures on European Union goods and services trade with the US up to a value of USD 7,496.623 million annually.” This is “the largest-ever authorized retaliation in [the WTO’s] history” which President Trump describes as a “$7 billion win.” However, Europe’s potential countermeasures, global political and economic environments, and the possible burdens of the tariffs on the United States’ economy need to be factored into the assessment of whether this WTO authorization is a true victory for the United States.

First, the European Union has a case against the United States in the WTO which alleges that the United States government has provided prohibited subsidies to Boeing. The WTO found that the prohibited subsidies from the United States government to Boeing exist, which means the decision regarding authorized retaliatory measures can be determined in about six months. It is hard to anticipate how much market gain Boeing may achieve when the WTO authorizes tariff retaliations by the European Union. Also, the European Union is prepared to counter the tariffs with legitimate measures, such as revoking trade settlements with the United States. The exacerbation of conflicts will not only harm the international business between the United States and the European Union, but also risk breaking the mutual trust built through decades of political and economic cooperation between the two allies. This is not the future the United States wants to see, especially when the United States is in a trade war with China and trade conflicts with multiple other countries.

Second, the tariffs will burden domestic consumers and workers. Airlines’ existing or future orders of Airbus commercial aircrafts will be subject to ten percent tariffs. The higher cost will be passed directly to domestic consumers. However, to increase the tariffs impacts on European imports and maximize their deterrence effects, the retaliatory measures are not limited to ten-percent tariffs on European aircrafts. The retaliatory measures will also be comprised of twenty-five percent tariffs on European agricultural products, including a “wide assortment of popular European foodstuffs such as coffees, olives, cheeses, liqueurs and cordials.” Also, European cars and auto parts are potential targets of the tariffs. These European goods are so close to consumers’ daily lives that tariffs on them can generate both financial and non-financial burdens, such as finding domestic substitutes for high-quality French wines. Moreover, the tariffs can also impact the United States’ manufacturing because Airbus employs many skilled workers in the United States to build its aircrafts, parts of which need to be imported from Europe, and thus are probably subject to the tariffs.

In short, the WTO authorization is a big win for the United States with regards to the amount of tariffs authorized, but the United States should be careful in imposing these tariffs because they might invoke retaliatory measures from the European Union, harm the international relationship between the United States and the European Union, and burden domestic consumers and workers.