US agrees tariff truce, but only if Airbus pays back billions in aid

Paris/Washington/Brussels — The US has offered to settle a long-running aircraft subsidy dispute with the EU and remove tariffs on wine, whisky and other products if Airbus repays billions of dollars in aid to European governments, several sources close to the matter have said.

The offer was made by US trade representative (USTR) Robert Lighthizer days before the World Trade Organisation’s (WTO) release on Tuesday of a report authorising Brussels to slap counter-tariffs on US goods over subsidies to planemaker Boeing, the sources said.

Lighthizer’s proposal, however, is unlikely to win support from the EU, which appears set to ask the WTO at an October 26 meeting to endorse $4bn in EU tariffs on US goods. The imposition of $7.5bn of US tariffs over Airbus subsidies has already started to hit European goods.

The USTR’s office and the European Commission, the EU’s executive body, did not respond immediately to requests for comment.

The loans stand at the centre of a 16-year-old dispute that has bedevilled trade relations and spread to industries from luxury goods to agriculture as the two sides seek to punish aircraft subsidies with tariffs.

WTO ruling

The WTO has ruled that European government loans to Airbus were unfairly subsidised through low interest rates while Boeing also received unfair support from tax breaks.

Under the new US offer, interest rates on past loans to support Airbus development programmes would be re-set to a level that assumed that only as few as half of the projects would succeed, two of the sources said, speaking on condition of anonymity.

That would assume a higher risk than Airbus partner nations — Britain, France, Germany and Spain — have traditionally priced into the loans and reflects a speculative type of investment.

Such repricing could cost Airbus up to $10bn, seen as unacceptable to the EU at a time when aircraft manufacturers have been seeking funds to survive the coronavirus crisis.

One European source called the proposal “insulting” and said it could accelerate the tariff war. A US source, meanwhile, said Lighthizer was “serious” about getting Airbus to hand back aid.

Details of the bid emerged after the US said on Tuesday that it was waiting for an EU response to an unspecified offer in the dispute. EU officials have said they, too, made an offer this year without receiving a US response.

Jostling for position

Analysts say both sides are trying to strengthen their positions ahead of any future negotiations. Both sides have urged negotiations while accusing the other of refusing to engage seriously.

Currently, Airbus repays government loans only when its sales exceed a certain threshold, while loans for weak-selling planes such as the A380 superjumbo can be waived partly or fully.

Airbus says the disputed loan system favours taxpayers because loan repayments on successful planes such as the A320 far outweigh amounts written off on jets that failed to reach sales targets.

The US argues that cheap loans have a lasting benefit to Airbus by leaving billions on its books, which it can use to develop jets and offer lower prices than otherwise possible.

Though the US would not benefit directly from increased repayments by Airbus to European states, US sources say that Boeing would benefit indirectly if Airbus finances were purely market-based.

European sources say that Boeing would also have to hand back billions if the same philosophy were applied to the US planemaker.

Reuters