Tit-for-tat transatlantic trade war ticks up

Geneva/Brussels — The EU has set a November 10 target date for triggering tariffs on as much as $4bn of US goods in retaliation over illegal aid to Boeing, according to people familiar with the matter.

The European Commission, the EU’s trade authority, has given the bloc’s national governments until November 3 to weigh in on a draft list of US products to be targeted, the people said on the condition of anonymity because the plan is confidential.

The EU’s aim to impose duties a week after Tuesday’s US election will apply regardless of whether Democratic nominee Joe Biden defeats President Donald Trump, one of the officials said. Biden is leading in several polls.

Europe is facing a series of tricky political and economic considerations as it seeks to persuade the US to negotiate a settlement to a 16-year-long dispute over subsidies to Boeing and rival Airbus.

For the past year, the EU has faced US tariffs on $7.5bn of European goods after Washington won a World Trade Organisation (WTO) case against unlawful aid to Airbus. This week, in a parallel lawsuit, the EU received final WTO permission to hit $4bn of US products with duties over subsidies to Boeing.

The WTO damages award in the Boeing case came months later than the EU had hoped. The delay has complicated EU deliberations as a result of the economic slump caused by the coronavirus pandemic and the proximity of the US election.

Some EU countries including Germany have been hesitant about retaliating close to the US election while others such as France have urged speedy action by the bloc.

The Brussels-based commission last year drew up a $12bn retaliation plan and has adjusted it to reflect the lower $4bn WTO damages award.

A revised version of the EU list in October included a mix of US aircraft-related products as well as other goods ranging from spirits and nuts to handbags and chemicals, according to one of the people familiar with the situation.

Trump has pledged to counter-retaliate and “strike much harder” if the EU imposes its duties.

Settlement talks

EU trade commissioner Valdis Dombrovskis has said any retaliatory action by the bloc would be done with reluctance, repeatedly urging the Trump administration to remove its tariffs over the subsidies to Airbus and focus on negotiating a settlement.

“In the absence of a negotiated outcome, the EU will be ready to take action in line with the WTO ruling,” Dombrovskis said on October 26.

Beyond the challenges of agreeing on a framework for future government aid to plane makers, both sides appear to be split over how to settle the treatment of past subsidies. US  trade representative Robert Lighthizer has demanded both a European pledge to end aid to Airbus and a repayment of “some element of the subsidy”.

Lighthizer said the EU had “no valid basis to retaliate” because the US had already withdrawn its offending subsidies to Boeing. “Any imposition of tariffs based on a measure that has been eliminated is plainly contrary to WTO principles and will force a US response,” Lighthizer said in a statement in October

To date, the US has refrained from applying the maximum tariff level in the $7.5bn damages award from the WTO in 2019. That ruling led the Trump administration to impose 15% tariffs on Airbus aircraft and 25% levies on an array of European exports including French wine, Scotch whisky and Spanish olives.

Washington could raise those import taxes to 100%, which for many European products would effectively block their entry into the US marketplace.

Bloomberg