After nearly 10 months of calm, trade conflicts between the United States and Europe have resurged.
On March 28, the WTO issued a final ruling in Airbus v. the US government subsidized Boeing, claiming that it was illegal for the US to provide subsidies to Boeing in the form of tax relief in Washington State.
On April 8, the U.S. Office of Trade Representatives (USTR) released a preliminary list of tariff retaliations totalling $11 billion, noting in its statement that USTR predicts that EU subsidies will hurt the United States in trade at $11 billion a year.
On April 9, in response to the threat of US tariffs of US $11 billion imposed on EU by Airbus Subsidies, the EU made three important statements in its latest response: the scale of US $11 billion has been seriously exaggerated, and the EU is waiting for WTO arbitration on the scale of the counterattack and the EU is ready to retaliate.
Airbus shares fell 1.86% on April 9, and 2.3% on April 8, after the U.S. Trade Representative Office (USTR) announced the tariff, the biggest one-day decline in nearly two weeks.
When WTO authorizes EU to fight back
USTR released a preliminary list of tariff retaliation totalling $11 billion on the 8th, noting in the statement that USTR predicted that EU subsidies would hurt the United States $11 billion a year in trade and that the amount would need to be arbitrated by the World Trade Organization (WTO). The results are expected to be released this summer.
Both the EU and Airbus have sent spokesperson-level personnel to respond to the US TRs $11 billion tax threat, with similar calibre, and the EU statement can also see why the EU has not yet launched a countertariff: in accordance with WTO rules.
EU spokesman pointed out that the $11 billion quota was not authorized by WTO, only based on the internal estimates of the United States and seriously exaggerated. The quota of retaliation authorized by WTO can only be determined by arbitrators appointed by WTO. The EU spokesman pointed out.
In fact, the European Union is also preparing retaliatory measures against the United States: the WTO ruled on March 28 in the Airbus v. U. S. Government Subsidies for Boeing case, claiming that the U. S. provided subsidies to Boeing in the form of tax relief in Washington State was illegal, that Boeing accepted illegal subsidies of at least $5 billion, and demanded that the U. S. withdraw its subsidies to Boeing, but the U. S. side combined these subsidies. It has not stopped, and these subsidies have done harm to the EU.
A spokesman for the EU said that the arbitrators appointed by the WTO would be required to determine the EUs right of retaliation. At present, the European Commission is starting preparatory work so that the EU can act immediately on the decision of the arbitrator. The EU spokesman added, The EU is still willing to discuss with the United States, provided there are no preconditions and the aim is to achieve a fair outcome, the official said.
Our ultimate goal is to reach an agreement with the EU to end all subsidies that are not related to large civil aircraft and are inconsistent with WTO rules, USTR representative Lethizer said in a previous statement. He also stressed that these additional tariffs imposed by the United States could be lifted when the EU ended these harmful subsidies.
USTR Accurately Attacks European Union Countries
The reason why both the United States and Europe can levy taxes on each other is that the WTO has ruled that the United States and the European Union simultaneously provide illegal subsidies to their respective aviation enterprises. In 2018, the WTO Appellate Body ruled that the EU and its four member states had failed to comply with previous rulings and were still subsidizing Airbus in violation of regulations. On March 28 this year, the WTO ruled that the United States was still illegally subsidizing Boeing.
According to the relevant provisions of WTO, both the EU and the United States can use the relevant amount to impose retaliatory taxes on each other. Specifically, according to WTO, if the defendant fails to enforce the award within a reasonable period of time or the parties to the dispute fail to reach an agreement on compensation, the complaining party may apply to the WTO dispute settlement mechanism for approval to suspend the concession or other obligations of the defendant under the applicable agreement, cancel the MFN treatment and initiate retaliation.
At the same time, the WTO Dispute Settlement Mechanism stipulates that the retaliation industry or department must be carried out in the same department as the disputed and damaged, and the retaliation should be limited to the extent of loss or damage of interest. If the injured party considers that retaliation against only one industry or department is ineffective or unable to reach a balance, cross-retaliation can be carried out in other sectors.
At present, the preliminary list of tariff retaliation issued by USTR still needs to follow the public evaluation link in the perfect country, but also wait for the WTO to evaluate the degree of retaliation. According to the list given by USTR at present, the US side has set the scope of retaliation as two groups. A group of four manufacturers of Airbus - France, Germany, Spain and the United Kingdom - and a group of 28 European Union countries.
In the first group of products targeting France, Germany, the United Kingdom and Spain, the main products to be tariffed include helicopters, cargo aircraft, and some aircraft parts and components.
Source of USTR Tariff List for French, German and Western British Parts: USTR Document
In the second column for the 28 EU countries, the scope of taxation is much wider, but mainly for food and agricultural products, which also reflects the idea of cross-retaliation. It includes a wide variety of cheese and many different kinds of jam, as well as fresh fruits (such as oranges and lemons), seafood (herring, octopus and clams) and many types of wine. Other items include motorcycles, knives, tiles and kitchenware, bedding, sweaters, handbags and essential oils.
The tariff threat is aggravated
This time, in response to the introduction of the $11 billion tariff list, President Trump tweeted, For many years, the European Union has been taking advantage of the United States in trade. It will stop soon!
Source of US President Trumps Speech on Social Media: Screenshots of Social Media
This is the latest substantial tariff threat to the EU by the US side since the US-EU trade cease-fire nearly 10 months ago.
The U.S. has already imposed tariffs on steel, aluminium and aluminium products from the European Union, which responded in 2018 by levying taxes on about $3 billion in U.S. products, including motorcycles, orange juice, peanut butter and jeans. Subsequently, the United States and Europe reached a ceasefire statement on July 25, 2018, and proposed that the United States and Europe would conduct free trade negotiations aimed at promoting 30 (zero tariffs, zero non-tariff barriers and zero subsidies).
However, in the process of preparing for the FTA negotiations, the US and Europe had a huge cognitive difference in the scope of the negotiations: as Lethizer said, the United States could not negotiate an agreement with Europe without agriculture, while the European side was of the view that they could not negotiate an agreement with agriculture. Since the EU has been unable to launch the 30 free trade negotiations with the United States, the United States has repeatedly threatened to impose a vehicle tax. The 11 billion tariff list makes the free trade negotiations possible and further complicated.
Source: Chi Xueying_NN6784, Responsible Editor of the First Finance and Economics Network