The long-running trade dispute between the European Union and the United States continues to bubble away. Both sides are complaining about Government subsidies aircraft manufacturers Boeing and Airbus have received, saying those subsidies represented an unfair advantage. Last year, the United States slapped a 10% tariff on Airbus aircraft and parts. Just days ago, the World Trade Organization okayed the imposition of counter-tariffs by the European Union. Now reports indicate the United States has offered to withdraw its tariffs if Airbus pays back monies and subsidies received from various European nations.
The United States offers to end the trade war, on certain conditions
A Reuters report on Thursday flags comments made by Robert Lighthizer, a US trade representative. According to that report, Mr Lighthizer made the offer to remove US imposed tariffs leading up to the World Trade Organization’s decision earlier this week.
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There are billions of dollars at stake here for both Airbus and Boeing. Boeing, via the United States Government, has long complained about unfair subsidies Airbus has received via low-interest loans from European Union nations. It’s not all one-way traffic, though. Airbus and the European Union have also complained about Boeing’s tax breaks and all lucrative the military and space work funneled to it from the United States Government.
It’s worth noting both Airbus and Boeing say they now fully comply with World Trade Organization rules. But the respective Governments are confident about that, and in part, the ongoing dispute is about remedying past wrongs, real or perceived.
A recent WTO win spurs the European Union & Airbus on
Airbus and the European Union had a win in the trade war recently. The World Trade Organization gave the green light earlier this week to the European Union imposing tariffs on US goods in response to the $7.5 billion of tariffs imposed by the United States.
The value of the European Union imposed tariffs is estimated to be north of $US4 billion. The World Trade Organization says both sides are at fault. However, the imposition of tariffs last year by the United States appears to have inflamed the situation.
Agreeing to the United States’ offer would cost Airbus an estimated $10 billion
Various European Union nations made low-interest loans to Airbus assuming projects those funds were propping up were all going to be successful. On that basis, the loans were low risk and priced accordingly. Further, Airbus only had to pay back government loans when aircraft sales reach a certain threshold. The United States argues this gave Airbus an unfair advantage. Not all projects work out well they say, not even at Airbus. The A380 is an example of that.
Mr Lighthizer says if half the loans made were repriced to account for a higher risk level, the United States would pull back, axe the 2019 tariffs, and wrap up the dispute (which covers more than just aircraft). But if half the Airbus loans were repriced at a fair value, it would see Airbus repay an estimated $10 billion.
Naturally, Airbus isn’t wildly enthused about the offer. At the European Union’s Brussel’s HQ, the proposal has also been met with watery smiles. The European Union says it could further inflame the dispute.
Negotiations will continue. Airbus appears to be future-orientated. They may make concessions but aren’t that interested in addressing water under the bridge. The United States prefers to dive deep under that bridge and seek redress for poor past behavior. But Airbus says Boeing would also be up for billions if they went down that path.
Until both sides can find the halfway point they are comfortable with, there is no end in sight for this arcane but fascinating trade war.