TWN Info Service on WTO and Trade Issues (Apr19/09)
12 April 2019
Third World Network

US threatens to slap $11 billion duties on EU goods

Published in SUNS #8885 dated 10 April 2019

Geneva, 9 Apr (D. Ravi Kanth) – The United States has opened a new front in its expanding trade wars with countries, threatening to punish its Trans-Atlantic trade partner, the European Union, by imposing additional import duties on Europe an goods worth $11 billion under the provisions of Section 301 of the US Trade Act of 1974.

Washington claimed that the EU has failed to remove “those subsidies” found by the World Trade Organization’s Appellate Body to be inconsistent with the core provisions of the WTO’s Agreement on Subsidies and Countervailing Measures.

At a time when the US civil aircraft behemoth Boeing is facing a worldwide backlash, following the two recent accidents caused by the B737 Max 8 aircraft’s flight management system, the US has chosen to attack Boeing’s major competitor, the EU’s civil aircraft company Airbus, proposing to impose retaliatory measures on European goods worth $11 billion under the US Trade Act’s Section 301 provisions.

In an unusual statement issued on Monday (8 April), the Office of the United States Trade Representative said “the World Trade Organization (WTO) has found repeatedly that European Union (EU) subsidies to Airbus have caused adverse effects to the United States.”

Consequently, the USTR said, the US has launched “its process [on Monday] under Section 301 of the Trade Act of 1974 to identify products of the EU to which additional duties may be applied until the EU removes those subsidies.”

The USTR also released a list of scores of EU goods that could be subjected to additional tariffs.

The 14-page list includes, among others, non-military helicopters and other products, including fuselages and fuselage sections and horizontal and vertical stabilizers for use in new civil airplanes; swordfish steaks, yogurt both flavoured and not-flavoured, butter, numerous varieties of cheese, and Roquefort cheese; olive oils of different varieties and fruits; and wines and carpets among o thers.

The USTR said the long list of EU products worth $11 billion, which are going to face additional duties, are based on “the harm from the EU subsidies as $11 billion in trade each year” and “the amount is subject to an arbitration at the WTO, the result of which is expected to be issued this summer.”

Even though the US announced its action under Section 301, it claimed in its statement that “this case [against Airbus] has been in litigation for 14 years, and the time has come for action.”

“The [Trump] Administration is preparing to respond immediately when the WTO issues its finding on the value of US countermeasures,” said US Trade Representative Robert Lighthizer.

“Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional US duties imposed in response can be lifted,” the USTR said.

It argued that “in line with US law, the preliminary list contains a number of products in the civil aviation sector, including Airbus aircraft.”

“Once the WTO arbitrator issues its report on the value of countermeasures, USTR will announce a final product list covering a level of trade commensurate with the adverse effects determined to exist,” the USTR maintained.

In a background note issued along with the statement, the USTR said “after many years of seeking unsuccessfully to convince the EU and four of its member States (France, Germany, Spain, and the United Kingdom) to cease their subsidization of Airbus, the United States brought a WTO challenge to EU subsidies in 2004. In 2011, the WTO found that the EU provided Airbus $18 billion in subsidized financing from 1968 to 2006. In particular, the WTO found that European “launch aid” subsidies were instrumental in permitting Airbus to launch every model of its large civil aircraft, causing Boeing to lose sales of more than 300 aircraft and market share throughout the world.”

Subsequently, the EU “removed two minor subsidies, but left most of them unchanged.” The EU also granted Airbus more than $5 billion in new subsidized “launch aid” financing for the A350 XWB.

Following a compliance panel report on the EU’s failure to remove both old and new subsidies and their adverse effects, the WTO’s Appellate Body found that “billions of dollars in launch aid to the A350 XWB and A380 cause significant lost sales to Boeing 787 and 747 aircraft, as well as lost market share for Boeing very large aircraft in the EU, Australia, China, Korea, Singapore, and UAE markets.”

“Based on the appellate report, the United States requested authority to impose countermeasures worth $11.2 billion per year, commensurate with the adverse effects caused by EU subsidies,” the USTR said.

“The EU challenged that estimate, and a WTO arbitrator is currently evaluating those claims,” the USTR maintained.

Using selectively the WTO’s AB rulings and agreements in the Airbus-Boeing trade war, the USTR has laboured hard to justify its actions that are clearly not in consonance with the WTO provisions.

To start with, the Section 301, for example, has little to do with the festering Airbus-Boeing subsidy war. That the dispute has numerous aspects and a range of adverse subsidies claims by both sides to their respective aircraft manufacturers is well known.

If the US can find fault with the Airbus subsidies, the EU too can find fault with the US subsidies to Boeing.

Recently, a compliance report by the WTO had established clearly that the US had continued to provide subsidies to Boeing despite the WTO’s ruling.

Last year, in its statement against the EU’s compliance dispute claim (27 August 2018), the US had claimed that the adverse effects caused due to EU subsidies to Boeing in the EU and third country markets amounted to between $7 billion and $10 billion.

It is not clear how that figure had been increased to $11 billion, unless the USTR had been privately told by its sources in the WTO.

True, the USTR said in its statement, the final amount is subject to the Arbitrator’s ruling to be issued soon.

Boeing, which is mired in a deep crisis following the accidents caused by Boeing aircraft’s flight management system, has welcomed the USTR’s action against the EU, even though the US action against the EU over Airbus subsidies will do little to restore worldwide confidence on Boeing’s “safety” or enable its 737 Max 8 to be allowed to fly by other nations, concerned over Boeing’s safety record and US Aviation Administration’s certifications on air-worthiness and safety.

“Boeing supports the US Trade Representative and his team in their ongoing efforts to level the playing field in the global aircraft marketplace,” the company said in a statement issued on 8 April, according to the Wall Street Journal .

“Hopefully, the draft tariff list will compel the EU to comply with past WTO rulings against it,” Boeing maintained.

More important, the US action against the EU under Section 301 provisions has revealed that Washington is ready to impose unilateral tariffs on any country, including its trans-Atlantic ally, by selectively using the WTO rulings and agreements.

The US, for example, used Section 301 provisions to impose unilateral tariffs on Chinese goods worth $250 billion. China had invoked dispute settlement proceedings against the US on grounds that the Section 301 provisions were inconsistent with the core WTO rules.

[In terms of compliance with WTO rulings (and modifying its laws and/or regulations found illegal, for example, over use of “zeroing” in anti-dumping investigations and countervailing duty levies, the US is yet to comply with any ruling on “zeroing”. SUNS]

Perhaps, the US action could be an attempt to pry open the EU’s market for farm imports. The EU has refused to discuss agriculture with the US during the ongoing bilateral talks to avert the retaliatory measures against each other’s imports.

On Monday (8 April), in a strange coincidence, senior US White House trade official Clete Willems told the US Chamber of Commerce that a trade deal that does not include agriculture [with the EU] will not be acceptable. The US is also concerned with the digital tax scheme being considered by France.

In short, the US has now issued a dire warning that regardless of the WTO rulings, it is ready to use its WTO-inconsistent provisions such as the Section 301 to impose retaliatory duties on any country of its choosing.