Dispute over Aviation Subsidies Needs Sustainable Solution

Since mid-October 2019, the United States has imposed retaliatory tariffs of 25 percent on numerous goods from the EU. The legal basis for this is a dispute settlement ruling of the World Trade Organization (WTO) on European subsidies for the aircraft manufacturer Airbus. Although the tariffs are WTO-compliant, they place a significant burden on the transatlantic relationship and lead to unnecessary costs for consumers and producers on both sides of the Atlantic. 

For years, the transatlantic partners have accused each other of subsidizing their respective aviation industries and thus violating WTO rules. For a long time, there was a gentlemen’s agreement between the United States and the EU to mutually tolerate this. In 2004, however, the United States terminated this agreement and filed a complaint with the WTO against the EU, in particular the member states France, Spain, Great Britain, and Germany. As a result, the EU also sued the United States for subsidizing Boeing.

Since then, the WTO ruled that the respective subsidies partly violate WTO rules. At the beginning of October 2019, a WTO dispute settlement panel subsequently estimated the amount of damage to the United States caused by the subsidies for Airbus at 7.5 billion U.S. dollars. The United States was also granted the right to levy retaliatory duties of this volume. In mid-October 2019, the United States imposed tariffs below the maximum possible tariff level of 100 percent. 

The amount of damages to the EU caused by U.S. subsidies to Boeing is yet to be determined. A panel finding is expected for June 2020. Only then will the EU, for its part, have the right to impose retaliatory tariffs on goods imported from the United States. The Trump administration is currently not showing a lot of interest in the EU’s offers to negotiate, so that the U.S. tariffs will probably remain in force until then. 

Pending Litigation and Threat of Further Tariffs

A panel report published by the WTO in early December 2019 concluded that EU Member States had still not brought their subsidies into conformity with WTO rules. The WTO thereby confirmed that the permitted tariff volume of 7.5 billion U.S. dollars was still legally valid according to current data. The EU side, on the other hand, criticised serious legal errors in the report. The EU subsequently appealed the panel report. Since the WTO Appellate Body is no longer functional due to the blockade by the United States, it will probably take years before an appeal is heard.

For its part, the Trump administration took the panel report as an opportunity to threaten to increase or expand U.S. tariffs. This would be legally possible, since Washington has so far not exhausted the entire volume of retaliatory tariffs permitted by the WTO. A consultation procedure on this issue will continue until mid-January 2020.