In a Federal Register Notice published on February 12, 2021, the Office of the U.S. Trade Representative (USTR) announced that U.S. tariffs on certain European Union (EU) products — all of which relate to the decades-long trans-Atlantic dispute over aircraft subsidies — will remain unchanged.
While this latest move, on the surface, may be viewed with disappointment by certain industry groups negatively impacted by the existing EU-product tariffs, the move can also be viewed as a nod to the apparent momentum building on both sides of the Atlantic for a resolution.
Background
This dispute dates back to 2004, when the U.S. filed a case with the World Trade Organization (WTO) alleging that Airbus had received $22 billion in prohibited government subsidies, and the EU responded by filing its own complaint before the WTO alleging that Boeing had received $23 billion in government subsidies.
During nearly two decades of ongoing dispute settlement, the WTO has issued rulings essentially allowing both sides to claim victory. In 2019, the Trump administration — after receiving WTO authorization to impose $7.5 billion in tariffs on EU-imported goods — exercised this authority by imposing 15% tariffs on Airbus aircraft and 25% tariffs on a variety of EU imports, including French wine, Scotch whisky and Spanish olives.
In the latest phase of the dispute, the EU announced last November that it was exercising its nearly $4 billion in WTO tariff authority by imposing additional ad valorem duties at a rate of 15% on certain airplanes and other civil aircraft, along with additional ad valorem duties at a rate of 25% on a host of other goods, including food items, beverages, polymers, suitcases and handbags, shovel loaders and tractors, and exercise equipment. Then, as detailed in our previous client alert, the most recent salvo occurred on December 30, 2020, when USTR announced that certain French and German products — including aircraft manufacturing parts and nonsparkling wines, cognac and other grape brandies — will be subject to new tariffs.
Biden Administration Foregoes “Carousel” Retaliation
As referenced in the February 12 Notice, Section 306 of the Trade Act of 1974 requires USTR, absent certain exceptions, to periodically revise (e.g., rotate) the duties imposed “in response to the failure of a U.S. trading partner to implement a WTO Dispute Settlement Body recommendation.”
This periodic revision, known as “carousel” retaliation, is intended to exert pressure on the U.S. trading partner by rotating the products subject to duties (and/or increasing the level of additional duties). By declining to revise the current EU product tariffs, USTR cited a statutory exception whereby USTR and “the affected United States industry” agree that revisions are unnecessary at the present time. Without providing any additional details or explanation in the two-page Notice, USTR simply stated that it will “continue to consider” the issue.
U.S. and EU Leaders Eyeing a Potential Resolution
Although U.S. tariffs on EU products will remain in place for now, more recent developments signal a joint desire to reach an equitable solution. Following a statement made by a USTR spokesman just days prior to the February 12 Notice expressing interest in resolving the dispute, EU Ambassador Stavros Lambrinidis stated publicly that Brussels has no desire to erect a “Fortress Europe” and is ready to work with the United States to strengthen the trade relationship between the U.S. and EU. The ambassador’s comments were on the heels of an EU proposal, purportedly raised last month, to implement a freeze on the tariffs for at least six months.
It is not expected, however, that the Biden administration will take any concrete steps — through formal negotiations or otherwise — until after USTR nominee Katherine Tai’s likely confirmation by the Senate, and once President Biden’s full trade and foreign policy teams are in place. The Senate has yet to schedule a confirmation hearing for Ms. Tai, although recent reporting indicates that it is likely to occur at the end of February.
