Hailed as a “new chapter” in the bilateral trade relationship between the U.S. and the European Union (EU), both sides announced on Tuesday during a U.S.-EU summit in Brussels that a deal was reached to suspend (for five years) all tariffs emanating from the long-standing trans-Atlantic dispute over aircraft subsidies. A nearly identical deal was then reached between the U.S. and the United Kingdom (which is now operating independently post-Brexit) one day later.
These suspensions will impact a wide array of U.S. and EU-origin products previously subject to additional ad valorem duties ranging from 15% to 25%.
As detailed in our previous client alert, this dispute dates back to 2004, when the U.S. filed a case with the World Trade Organization (WTO) alleging that Airbus SE had received $22 billion in prohibited government subsidies. A year later, following failed consultations with the U.S. and its request for establishment of a dispute settlement panel in the Airbus matter, the EU (at which time the U.K. was a member) responded by filing its own complaint before the WTO alleging that Boeing, a direct competitor of Airbus, had received $23 billion in government subsidies.
During nearly two decades of ongoing dispute settlement, the WTO has authorized both sides to levy tariffs leading to ongoing reprisals between the trading partners.
Europe and Biden Administration Celebrate a Repaired Relationship
As noted in our client alert published March 5, 2021, the U.S. and the EU laid the groundwork for a long-term deal by announcing a four-month suspension of tariffs emanating from the subsidy dispute (one day after an identical announcement between the U.S. and the U.K.).
To many, this week’s suspension announcements are the culmination of long-held hopes by European leaders that the Biden administration would ease bilateral trade tensions that have recently tested the trans-Atlantic trade relationship, as previewed in the European Commission’s policy document released in December 2020 titled “A new EU-U.S. agenda for global change.”
President Joe Biden echoed these general sentiments, stating Tuesday at the outset of meetings with EU leaders that “it’s overwhelmingly the interest of the United States of America to have a great relationship with NATO and the EU.” President Ursula von der Leyen of the European Commission, for her part, described the deal as a “breakthrough” that “opens a new chapter” in the U.S.-EU relationship. Similarly, as to the separate U.S.-U.K. deal, U.K. International Trade Minister Liz Truss noted that the suspension will allow both nations to take their trade relationship to the “next level,” while adding that it will permit U.S.-European allies to “work more closely to challenge unfair practices by nations like China and using the power of free trade to build back better from the pandemic.”
As noted above, the five-year suspension will impact a wide array of products previously subject to ad valorem duties ranging from 15% to 25%, including but not limited to food items, beverages, polymers, suitcases and handbags, exercise equipment and shovel loaders/tractors on the U.S. side, and cashmere, pork products, cheese, alcoholic beverages and machinery on the European side.
What’s Next for the U.S.-European Trade Relationship?
Despite the short-term implications of the aircraft subsidy tariff suspension, commentators have been quick to point out that the U.S. and Europe have not yet agreed on acceptable limits of public support for Boeing and Airbus. Notably, each suspension deal commits to the establishment of a Working Group on Large Civil Aircraft (a U.S.-U.K. working group and a U.S.-EU working group) with the aim of negotiating a level of state support measures for aircraft that is acceptable to both sides, especially in light of new entrants into the aircraft market from so-called “nonmarket” economies such as China.
The suspensions also leave many lingering trans-Atlantic trade issues on the table, including the controversial steel and aluminum tariffs (Section 232 tariffs) instituted during the Trump administration and continued by the Biden administration. To that end, however, the U.S. and the EU issued a joint statement on trade that includes a commitment for both sides to “engage in discussions to allow the resolution of existing differences on measures regarding steel and aluminum before the end of the year” and to “ensure the long-term viability of our steel and aluminum industries, and to address excess capacity." This stated commitment to resolve the Section 232 tariff issues was preceded by the EU’s recent suspension of plans to impose retaliatory tariffs on U.S. products in hopes of reaching such a deal.
Finally, as to the U.K., the suspension deal may prove to be a crucial step toward progress in the wider U.S.-U.K. free trade agreement (FTA) negotiations. The FTA is seen by the U.K. government as one of the largest potential benefits of the U.K.’s departure from the EU. However, thus far, the Biden administration has slow-walked a U.S.-U.K. FTA, as it continues to maintain a sharp focus on domestic priorities, especially as they relate to strategic competition with China.