By Alex Macheras
The United States and the European Union reached a deal on Tuesday to end a 17-year dispute over subsidies to Boeing and Airbus and phase out billions of dollars in punitive tariffs, the US trade envoy said.
US Trade Representative Katherine Tai said the two sides have come to terms on an initial five-year agreement to suspend the tariffs at the centre of the ongoing dispute. There was warning, however, that tariffs could be reimplemented if US companies are not able to “compete fairly” with those in Europe.
Under the agreement, both sides will remove taxes on $11.5bn (£8.2bn) of goods, including other sectors not associated with aviation: Wine, cheese and tractors, for five years.
Those tariffs, imposed by both sides as punishment in the escalating dispute, had already been suspended earlier this year while both sides tried to resolve matters.
“The announcement resolves a long-standing irritant in the US-EU relationship,” Tai said, as President Joe Biden met with EU leaders in Brussels. “Instead of fighting with one of our closest allies, we are finally coming together against a common threat.”
The US imposed what could have amounted to $7.5bn in tariffs on European exports in 2019 after the World Trade Organisation ruled that the EU had not complied with its rulings on subsidies for Airbus, which is based in France. The EU retaliated last November with up to $4bn in punitive duties after the WTO ruled that the US had provided illegal subsidies to Seattle-based Boeing.
The row itself centred on subsidy transparency and whether France, Germany and Spain should be allowed to continue granting Airbus “repayable launch investments” – credits to develop new aircraft models, under which Airbus pays back an amount dependent on how successful the new aircraft model is.
Europe have continued to argue that Washington, DC also grants indirect state aid to Boeing under defence contracts and other avenues to the manufacturer, particularly during the Trump presidency.
In March 2021, just weeks after Biden had taken hold of the highest office in government, both sides agreed to suspend the tariffs. That suspension started on March 11 for four months. The new agreement will officially go into effect on July 11. Earlier this year, Airbus CEO Guillaume Faury told me the tariffs and subsidy dispute was ‘lose-lose’ for both Airbus + Boeing, adding he was hopeful there could be an agreement reached with the new Biden-Harris administration.
Airbus welcomed the agreement. “This will provide the basis to create a level playing field which we have advocated for since the start of this dispute. It will also avoid lose-lose tariffs that are only adding to the many challenges that our industry faces,” an Airbus spokesperson said in a statement.
The two sides will also set up a working group on large civil aircraft, headed by one another’s trade ministers, and collaborate on addressing harmful non-market activities by third parties.
Freezing the trade conflicts would give both sides more time to focus on broader agendas such as concerns over China’s state-driven economic model, diplomats said.
“This really opens a new chapter in our relationship because we move from litigation to cooperation on aircraft – after 17 years of dispute,” said European Commission President Ursula von der Leyen.
Elsewhere, Airbus is weighing the development of a freighter version of its wide-body A350 aircraft, the European manufacturer’s chief commercial officer said on Tuesday, a move that could take on rival Boeing in the air cargo market. The pandemic has also fuelled a surge in demand for the conversion of retired passenger aircraft into freighters.
Air freight demand, which was weak before the Covid-19 crisis, has soared as home-bound shoppers turn to e-commerce. Normally about half the world’s air cargo is carried in the bellies of passenger jets, but a hit to travel from the pandemic has left the world more reliant on dedicated freighters and conversions of passenger planes.
Reuters report that the latest design on the drawing board at Airbus’s Toulouse headquarters in France involves a slightly longer aircraft than the best-selling Airbus A350-900 jetliner.
Its development poses technical challenges since it would involve placing a cargo door in the composite shell chosen by Airbus to compete with Boeing’s lightweight composite 787.
Experts say cutting composite is more challenging than traditional aluminium, though Airbus could reap benefits from a decision – seen as costly at the time - to build the A350 from composite panels rather than barrel sections used on the 787.
As expected, Airbus would need commitments for some 50 aircraft to go ahead with a launch. A launch of a new cargo A350 could push Boeing into reacting with a freighter version of its larger 777X.
* The author is an aviation analyst. Twitter handle: @AlexInAir
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