The United States and the European Union are approaching a decision point on whether to continue a suspension of tariffs covering $11.5 billion of goods tied to a protracted dispute over subsidies for large aircraft. The current truce, agreed on June 15, 2021, was set for five years and is due to expire in days.
The dispute dates back to 2004, when both sides filed parallel cases at the World Trade Organization alleging unfair subsidies for their respective plane makers, Boeing in the United States and Airbus in Europe. In 2019 the WTO authorised Washington to impose tariffs on $7.5 billion of European exports in the Airbus case, with those measures targeting products such as cheese. In 2020 the WTO granted the European Union the right to take countermeasures on $4 billion of U.S. imports, including tobacco and spirits.
Under the 2021 agreement the two parties suspended implementation of those authorised tariffs for five years. With the suspension nearing its scheduled end, a European Commission spokesperson said on Thursday that discussions were ongoing to extend the pause.
When the suspension was announced in 2021, the two sides said they intended to pursue a broader accord on subsidies for large aircraft and to address investments in aircraft by "non-market actors," a phrase in the original statement that explicitly referred to China. They also expressed an expectation then that the dispute could be resolved within five years. That timetable has not been met, and tensions surrounding tariffs have risen in the meantime.
Although aircraft and aircraft parts are excluded from the tariff measures now in place, the EU has faced fees on many of its exports to the United States tied to the authorised retaliatory and punitive actions. The pending decision will determine whether those tariff suspensions continue or whether the authorised measures are reimposed.
Summary of developments
- Parallel WTO complaints were lodged in 2004 over subsidies for Boeing and Airbus.
- The WTO authorised the U.S. to impose $7.5 billion of tariffs on EU goods in 2019 and the EU to impose $4 billion on U.S. goods in 2020.
- Both sides agreed on June 15, 2021 to suspend those tariffs for five years; talks are now under way about a possible extension.
Market and sector implications
- Aerospace: The suspension excludes aircraft and aircraft parts, but the dispute concerns large aircraft subsidies and remains a central risk for the sector.
- Food and beverages: Products cited among authorised tariff targets include cheese, tobacco and spirits, linking agricultural and packaged-food exporters to the dispute.
- Trade and manufacturing: Reinstatement or continuation of tariffs would influence cross-Atlantic trade flows and could affect exporters disproportionately by sector.