Despite Lame-Duck Status, Trump Administration Follows Through on Threat to Increase EU Product Tariffs

With less than three weeks remaining before President-elect Joe Biden is inaugurated as the 46th President of the United States, the Trump administration launched the latest salvo in the decades-long trans-Atlantic dispute over government subsidies to the Boeing Company and Airbus SE. On December 30, 2020, the United States Trade Representative (USTR) announced that certain French and German products — including aircraft manufacturing parts and non-sparkling wines, cognac and other grape brandies — will be subject to new tariffs. In addition to heightening the pressure on both sides of the Atlantic to achieve a negotiated resolution, this latest move all but ensures that any such resolution rests with the incoming Biden administration.

Background

As detailed in our previous client alert, this dispute dates back to 2004, when the U.S. filed a case with the World Trade Organization (WTO) alleging that Airbus had received $22 billion in prohibited government subsidies. A year later, following failed consultations with the U.S. marked by the U.S. request for establishment of a dispute settlement panel in the Airbus matter, the EU responded by filing its own complaint before the WTO alleging that Boeing, a direct competitor of Airbus, had received $23 billion in government subsidies.

During nearly two decades of ongoing dispute settlement, the WTO has issued rulings essentially allowing both sides to claim victory. In 2019, the Trump administration — after receiving WTO authorization to impose $7.5 billion in tariffs on EU-imported goods — exercised this authority by imposing 15% tariffs on Airbus aircraft and 25% tariffs on a variety of EU imports, including French wine, Scotch whisky and Spanish olives.

Then, on October 26, 2020, the WTO authorized the EU to impose, as a counter measure, nearly $4 billion in tariffs on imported goods from the United States. The EU quickly exercised its new authority by assessing additional ad valorem duties at a rate of 15% on certain airplanes and other civil aircraft, along with additional ad valorem duties at a rate of 25% on a host of other items, including but not limited to: food items, beverages, polymers, suitcases and handbags, shovel loaders and tractors, and exercise equipment. 

U.S. Expands List of EU Products Subject to Tariffs

According to the Federal Register Notice, the expanded list of products will include French and German:

• Aircraft-manufacturing parts, including certain fuselages and fuselage sections, wings and wing assemblies (other than wings having exterior surfaces of carbon composite material), and horizontal and vertical stabilizers.
• Certain non-sparkling wines, cognac, and other grape brandies.

The aircraft manufacturing parts and beverages will be subject to additional ad valorem duties at a rate of 15% and 25%, respectively. These new tariffs are slated to go into effect on January 12, 2021.   

In the notice, USTR states that it is expanding the products on which tariffs would be applied because the EU’s tariff calculation was flawed in that it relied on data from a period when trade was not impacted by the global COVID-19 pandemic; and did not appropriately account for U.S. exports to the United Kingdom. USTR states that, as a result of the flawed methodology, the new EU tariffs covered a disproportionate volume of U.S. imports; thus requiring a “proportionate” response from the United States.   

Notably, the USTR announcement comes less than a month after the EU unveiled a policy document entitled “A new EU-U.S. agenda for global change” that calls for a resolution to so-called “bilateral trade irritants,” including the ongoing aircraft dispute. Moving forward, there is now little doubt that the prospects for a negotiated resolution rest exclusively with the incoming Biden administration. 

As always, Faegre Drinker will continue to closely monitor these issues and provide timely updates as warranted. Please do not hesitate to contact us with any questions.