Dec. 9. 2019, © Leeham News: The US Trade Representative (USTR) Friday dismissed Airbus; conclusion last week that the tariff authorized by the World Trade Organization (WTO) should be lowered by about $2bn.
The WTO’s Compliance Panel last Monday largely rejected the European Union’s appeal of the amount the Arbitration Panel set in October that $7.5bn in tariffs could be levied by the US.
The Trump Administration levied tariffs on a wide variety of non-aerospace goods from across the EU. It also levied a 10% tariff on Airbus airplanes imported into the US. It exempted the A320 family of planes assembled at the Mobile (AL) plant.
Airbus responded to the Compliance Panel’s decision by noting it viewed reduced the “harm” to Boeing as a result of the decision in February by Airbus to cease production of the A380 in 2021.
Accordingly, Airbus asserted that the tariff should be reduced by about $2bn.
Contesting the assertion
The USTR issued a statement Friday rejecting this claim.
“Two months ago, the WTO arbitrator found that the EU’s subsidies caused adverse effects worth $7.5bn per year,” the USTR said. “Nothing in the WTO report even suggests that the compliance panel found that the amount has decreased. There is accordingly no basis for Airbus’s assertions that the report “implies” that the U.S. countermeasures should be reduced by $2bn.
Airbus issued this response yesterday to LNA’s request for comment of the USTR statement:
The compliance panel found in para. 7.440: “We therefore find that the A380 LA/MSF subsidies are not a genuine and substantial cause of present significant lost sales in the VLA product market.”
In other words, the subsidy element of the loans (ie. the difference between the actual interest rate and what we would have gotten at market) contracted in the early 2000s for an aircraft that is no longer being sold, no longer cause Boeing to lose sales. In other words, the panel confirmed that, with its announcement of the wind down of the A380 programme, Airbus has removed any adverse effects in the form of lost sales (see also para 7.411 and 7.412).
In awarding the US retaliation rights of $7.5bn per year, the WTO arbitrator based that value of (1) adverse effects in the market for A380 aircraft and (2) adverse effects in the market for A350 aircraft. For the A380 market, it valued lost sales (the Emirates 2013 order – see the decision of the WTO arbitrator of October, table 18 at para. 6.486) and impedance (decision of the WTO arbitrator of October, table 19 at para. 6.488). And for the A350, it found lost sales. The WTO arbitrator added the value of all the adverse effects (A380 lost sales, A380 displacement, A350 lost sales) to arrive at its finding of $7.5bn per year (see decision of the WTO arbitrator of October, Tables 20 and 21, at paras. 6.491 and 6.500).
While the precise calculations were not disclosed, our estimate is that A380-related lost sales account for approximately 25%, or $2bn, of the overall value. Only the US and EU governments will have access to the precise figures.
With this week’s finding that no lost sales continue to exist, the amount of countermeasures should be reduced accordingly.