Leeham News and Analysis
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Leeham News and Analysis
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EU ready to instantly retaliate if US imposes tariffs in Airbus WTO case
Sept. 29, 2019, © Leeham News: The European Union is ready to retaliate against the US for any tariffs imposed, as early as October, in response
to the World Trade Organization authorization to do so in connection with the Airbus subsidies case.
Even though the EU’s case against Boeing before the WTO, seeking authorization to impose subsidies for Boeing’s illegal subsidies, won’t be finished until next spring, the EU, French and German authorities pointed out that previous WTO cases against the US which they won allow them to impose tariffs they haven’t levied.
They are prepared to do so immediately in the Trump Administration levies tariffs on European goods.
EU States involved
France, Germany, Spain and the UK are the member states behind the 15-year trade battle between the EU and US over the subsidies and tax breaks provided Airbus and Boeing.
The WTO found each company received illegal aid and found each company failed to fully comply with rectifying the aid. This opened the door for the WTO to authorize tariffs, with the US authority coming first.
The WTO will announce as early as the week the total subsidy exposure that may be subject to US tariffs. This figure is believed to be in the $8bn range (and it may turn out to be a wide range). The actual tariffs will be a percentage on this figure.
Although the EU case against Boeing won’t see the tariff authorization until next year, the EU’s historical wins in WTO cases for which it did not levy tariffs enables immediate retaliation, EU, French and German authorities said in recent weeks.
As with US levies on EU member state goods, neither side is required to levy tariffs on the Airbus or Boeing planes, parts or components. Industries and products unrelated to aerospace may be subject to tariffs.
Yet another WTO step
But before the US can impose tariffs, there is yet one more step that has to be completed.
Yet another WTO committee must determine the final level of tariffs and what Airbus airplanes remain out of compliance.
With the termination of the A380 program, Airbus argues that based on previous WTO actions and decisions, the A380 is no longer subject to compliance actions. On this basis, only two of four complaints lobbed against the A350 launch aid would be subject to compliance enforcement, Airbus claims.
Whether the WTO agrees with both these positions is subject to one more action.
A220 exposure
When the WTO cases started and running their course, Bombardier’s C Series was not part of the Airbus complaint. Since then, Airbus acquired 50.01% of the C Series program, renaming it A220. The wings are made in Northern Ireland, which is part of the UK. The UK today is part of the EU.
A question arises whether A220 wings imported to the US for assembly in the Mobile (AL) plant will be subject to tariffs—or, for that matter, whether the A220s assembled in Montreal and imported into the US will be subject to tariffs.
The content of the wings may be below the levels outline in the US target list for potential levies—this remains a question.
But with the UK’s looming Brexit, another question arises whether tariffs would be levied after the UK departure.
The answer, LNA has learned is yet—because the complaint was against the Airbus member states in addition to the EU. Thus, the UK will continue to be subject to potential tariffs even after leaving the EU.
Airbus, Boeing exposure
In April, LNA prepared a summary of Airbus and Boeing backlogs in the US and EU. These are shown here.
With the grounding of the 737 MAX, there has been little change in the Boeing-EU backlog. Airbus backlogs to the US will have reduced somewhat.
Affected backlogs to lessors are probably less than indicated in the charts. Many of these airplanes deliver to areas outside of the US or EU and are unlikely to be subject to tariffs.
US airlines with Airbus objected to US plans to impose tariffs on Airbus deliveries.
And parts? The international aircraft manufacturing industry is multilateral. So if parts are taxed it damages all players.
One heck of a mess. Suppliers of Airbus in the US are 30% or more of an Airbus, A220 more so (at least North American)
A lot in motion politically on all fronts so baton down the hatches and brace the main mast, she er gonna storm.
Boeing is not immune to Tariffs coming from all directions, not only the EU, considering the % of Boeing’s aircraft parts being internationally outsourced. Believe, the Dude is out of control to defend this WTO issue which will backfire in his face. Boeing does not need this additional conflicts at this time of several mayor issues, since their WTO subsidy penalties will be way above the Airbus’.
With a trade deficit of more than US$150 billion a year, America has nothing to lose.
Moreover, America will be far better without importing Airbus, German cars and SUV, French wines and cheese, Spanish fruits and veggies,…
Guess who finances the US government spending deficit. Yes those same overseas countries that the US has a deficit in goods and services.
Although these numbers only count goods
“The United States ran a $419 billion goods deficit with China in 2018. The next largest contributor to the goods deficit, at $151 billion, is the European Union, followed by Mexico at $81.5 billion, Japan at $67.6 billion, and Malaysia at $26.5 billion.”
Financial money flow is completely left out of the equation.
What the US does globally is “Magernwiesenwirtschaft”.
( over the day ruminants are browsing some barren landscape while at night you bring them back home for some valuable manure now available to fertilize your produce.)
Profits ( abroad ) are not counted. And it is not pennies.
With the upcoming moves of these being rightfully siphoned off
on the EU side …
It is very stupid to talk about cheese, wine and fruit. Agriculture represents around 1% of Europe’s economy in GDP terms. It is politically visible for Trump indeed but it is non-material for Europe.
Let’s talk about cars then : Mercedes sells around 350.000 cars in the US annually. It produces 310.000 cars in the US. Look at the stats for BMW, they won’t be far off.
Ok, let’s take planes. Airbus has an order book of 700 planes in the US (including the a220, also including a big leasing company order that will partially be delivered outside the US).
Boeing has an order book of around 1200 planes in Europe which includes more twin-aisles. So we can fairly say Boeing sells double the planes in Europe than Airbus does in the US.
I rest my case
@Carl: You have to separate “Europe” from the “EU.” Non-EU countries aren’t involved.
Correct.
Not in European Union but in Europe :Albania, Armenia. Belarus, Gibraltar, Iceland, Kosovo, Lechtenstein, Macedonia, Norway, part of the Russian Federation, Switzerland, Turkey, Ukraine, and Vatican City State (Holy See).
To me, only Switzerland, Turkey and Norway seem to be relevant in size.
They maybe represent 10 to 15% of the GDP of the whole EU.
So my point still stands.
You forgot Kazakhstan for which its European part contributes 5% to the countries size. For Turkey its only 3%. Or should I have started: Since when is Turkey part of Europe?
Boeing campaigns for the king stallion. Should have spent the lawyer money on some proper tooling.
When the UK is on its own, it will understand where it sits on the food chain in this world of predatory trading practices.