April 07, 2021

Trans-Atlantic Truce: U.S. and European Allies Move Closer to Resolving Longstanding Aircraft Subsidies Dispute

Viewed by many as a crucial step in the Biden administration’s effort to “rebuild” the trade relationship with traditional U.S. allies in Europe, on March 4, 2021, the United States and the United Kingdom announced a four-month suspension of tariffs emanating from the decades-long trans-Atlantic dispute over aircraft subsidies. The announcement came just one day prior to the U.S. and the European Union agreeing to an identical suspension.

Although the tariff suspensions are temporary (the U.S.-UK suspension lapses on July 4, 2021, and the U.S.-EU suspension lapses on July 11, 2021), it is widely anticipated that both suspensions will be extended as the parties continue working toward a resolution.

Background

The aircraft subsidy dispute dates back to 2004, when the U.S. filed a case with the World Trade Organization(WTO) alleging that Airbus received $22 billion in prohibited government subsidies. The EU responded by filing its own complaint before the WTO alleging that Boeing had received $23 billion in government subsidies. During nearly two decades of ongoing dispute settlement, the WTO issued rulings essentially allowing both sides to claim victory. In 2019, the Trump administration, after receiving WTO authorization to impose $7.5billion in tariffs on EU-imported goods, exercised this authority by imposing 15% tariffs on Airbus aircraft and25% tariffs on a variety of EU imports. The WTO similarly awarded the EU the right to impose nearly $4billion in tariffs on U.S.-imported goods, which the EU proceeded to levy in November 2020.

Ongoing Discussions

The subject suspensions — which impact a wide array of products previously subject to ad valorem duties ranging from 15% to 25%, including airplanes and other civil aircraft — are viewed as a crucial step in the Biden administration’s effort to shore up the trans-Atlantic alliance for purposes of, among other things, tackling global issues of mutual interest. In a recently issued 2021 Trade Policy Agenda and 2020 Annual Report, the Biden administration underscored its plans to engage with “allies and like-minded trading partners” to address climate change and a variety of trade issues related to China.

On the U.K. side of the ledger, the tariff détente is also being viewed as a momentum-builder for achieving a comprehensive free trade agreement (FTA) with the United States, notwithstanding the Biden administration’s cautious messaging thus far on a future U.S.-U.K. FTA (and FTAs in general).

Despite these positive developments, observers on both sides of the Atlantic are concerned regarding the perceived escalation in the ongoing dispute over Digital Services Taxes (DSTs), which the Biden administration views as discriminatory toward U.S. tech companies. Most recently, on March 26, 2021, USTR announced the next steps in its Section 301 investigations of DSTs, begun by the Trump administration, in light of DSTs recently adopted by Austria, Italy, Spain, and the United Kingdom, among others. Specifically, USTR announced that it is proceeding with the public notice and comment process on possible trade actions —including the imposition of up to $880 million in tariffs against certain imports from those six countries — to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations. The outcome of this dispute, and its potential impact on the ongoing discussions surrounding the Boeing-Airbus tariffs, will garner significant attention in the months ahead.

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