Trans-Atlantic Truce: The U.S. and its European Allies Agree to Suspend Tariffs in an Effort to Resolve the Longstanding Dispute Over Aircraft Subsidies

Faegre Drinker Biddle & Reath LLP

On March 5, 2021, the United States and the European Union announced a four-month suspension of tariffs emanating from the decades-long trans-Atlantic dispute over aircraft subsidies. The move comes just one day after a the U.S. and the United Kingdom announced an identical suspension.

In their joint statement, the U.S. and the E.U. said they are “committed to reaching a comprehensive and durable negotiated solution to the Aircraft disputes” and that “[k]ey elements of a negotiated solution will include [1] disciplines on future support in [aircraft] sector, [2] outstanding support measures, [3] monitoring and enforcement, and [4] addressing the trade distortive practices of and challenges posed by new entrants to the sector from non-market economies, such as China.”

Background

As explained in our recent client alert, the aircraft subsidy dispute dates back to 2004, when the U.S. filed a case with the World Trade Organization (WTO) alleging that Airbus — a European-based aerospace corporation — received $22 billion in prohibited government subsidies. The European Union 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 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. The WTO similarly awarded the EU the right to impose nearly $4 billion in tariffs on US-imported goods, which the EU proceeded to levy in November 2020.

Suspension Announcements and Their Potential Implications

Per the joint statements issued on March 4 and March 5, respectively, the U.S., EU, and U.K. will suspend, for a period of four months, all tariffs (both on aircraft and non-aircraft products) emanating from the aircraft subsidy dispute. Both statements indicated that a suspension will allow the parties to ease the burden on affected industries and workers, and achieve a long-term resolution.

The suspensions will ultimately impact a wide array of products, including but not limited to, on the U.S. side, food items, beverages, polymers, suitcases and handbags, exercise equipment and shovel loaders/tractors; and on the European side, cashmere, pork products, cheese, alcoholic beverages and machinery.

The national governments on both sides of the pond have been signaling such measures for weeks. Early last month, 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. The ambassador’s comments were on the heels of an EU proposal, purportedly raised earlier this year, to implement a freeze on the tariffs for at least six months. Then, in a Federal Register Notice published on February 12, 2021, USTR announced that it was declining to exercise its statutory authority to impose so-called “carousel” retaliation (through tariffs or other trade restrictions) on EU products, a move viewed by many as a nod to the momentum building for a trans-Atlantic resolution.

More broadly, the suspensions are viewed as a crucial next step in the Biden administration’s effort to “rebuild” the trade relationship with traditional U.S. allies in Europe. In a newly-issued 2021 Trade Policy Agenda and 2020 Annual Report, the Biden administration emphasized its plans to engage with “allies and like-minded trading partners” to address climate change and a variety of trade issues related to China.

On the UK side of the ledger, the tariff détente is also being viewed as a momentum-builder for achieving a comprehensive free trade agreement with the United States, despite the Biden administration’s cautious messaging thus far on a future U.S.-U.K. FTA (and FTAs in general).

For More Information

As always, Faegre Drinker will continue to monitor related developments on this issue. Please do not hesitate to contact us with any questions.

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