Updated June 21, 2021: Suspension of tariffs for 5 years
U.S. and E.U. agreed to suspend the tariffs arising from the Boeing-Airbus dispute for the next five years.
The United States and the European Union resolved last Tuesday, June 15, the controversy that arose 17 years ago over the subsidies granted to the big airlines Boeing and Airbus, North American and European respectively.
The origin of this disagreement goes back to 2004 and it entailed the adoption of new punitive tariffs, estimated at $11.5 billion, on a wide range of non-aircraft products. However, with the recent solution, both parties are committed to suspend those tariffs during the next five years, until 2026. In particular, the agreement means that the punitive tariffs on products such as olive oil, cheese, wine, and spirits shall cease to be applied, as agreed last March 2021.
Furthermore, it is pointed out the existence of certain limits which, if exceeded, will mean the return of sanctions. This limitation is that EU concessions to Airbus do not exceed a consistent amount or “red line”.
The agreement was starred by Katherine Tai, head of the US Trade Representative, and Valdis Dombrovkis, European Commission Executive Vice-President. On her side, Tai said that “today’s announcement resolves a longstanding trade irritant in the US-Europe relationship”. She added that, instead of fighting against one of its greatest allies, they are finally coming together to deal with possible common threats.
In the announcement issued jointly with the European Union, it is held the creation of a Working Group on Large Civil Aircraft. It consists of a group of experts led by each side’s respective high responsible for trade who will work for finding a long-term solution.
Lastly, as part of the deal, the EU and the U.S. agreed to provide research and development funding through a transparent process as well as to not give specific support, such as tax breaks, to their own producers that would harm the other side.
Updated March 15, 2021: Temporary suspension of tariffs
The President of the European Commission, Ursula von der Leyen, released last Friday, March 5th, a statement where she announced the temporary suspension of tariffs between the United States and the European Union. The great news came out after a phone call between von der Leyen and Joe Biden. Although at the beginning of his presidency Biden respected the tariffs raised by his ancestor Donald Trump, now it seems that the democrat President has chosen to improve the relationship with the European Union and to open the doors to negotiation. For the moment, both aircraft tariffs and non-aircraft tariffs are suspended for the next four months. But neither side rules out extending this period. The Office of the US Trade Representative (USTR) has notified that the suspension of the additional tariffs on goods of the European Union begins at 12:01 a.m. eastern standard time on March 11, 2021.
This decision is the first step towards an improvement of the United States and the European Union bonds, and proves the willingness of both powers to end the tension of the last years. In fact, von der Leyen assured they have the intention of ending the Airbus-Boeing disputes.
The announcement has sowed certain serenity among the Spanish manufacturers of olive oil, cheese, and wine, the most affected sectors due to the 25% tariffs imposed on their products. It is expected with encouragement to reach an agreement this year, drawing a line under trade disputes and benefiting international politics and trade relations.
Update February 17, 2021: Biden keeps European tariffs
The European response to trade policies of the Trump Administration
In the last years, with Trump leading the United States (2017-2021), the policies implemented regarding the commercial field on both sides of the Atlantic have led to a serious confrontation. On one hand, Trump imposed in 2019 a series of tariffs worth 7.5 billion dollars on products of European origin. Given these severe measures, Stavros Lambrinidis, the European Union ambassador in the U.S., tried to enhance new agreements to ease trade tensions between both actors, but the attempt was unsuccessful.
On the other hand, the European Institutions decided to respond with the same severity, which was translated into a tax increase on certain American assets. This European decision is contained in the European Commission Implementing Regulation 2020/1646 of November 7, 2020, and it is rooted in the authorization issued by the World Trade Organization (WTO) last October 2020. As stated in this authorization, Article 22.7 of the Dispute Settlement Statue (DSU) gives the EU the right to take customs and tariff countermeasures against the United States.
These new tariffs promoted from Brussels make up a total of 4.1 billion dollars and are aimed at four main groups of U.S. products, with the aeronautical industry being the most affected group, with 44% of the total tariff applied to it. Here you may find the link to the list of American products with specific tariffs.
All this is a result of the dispute arisen in 2004 over the subsidies granted to Airbus (by the EU) and years later to Boeing (by the US), which were deemed illegal by the World Trade Organization (WTO). The consequences of such confrontation are still present.
Biden keeps European tariffs for now but leaves the door open for negotiation
The beginning of the new Democratic Presidency last January 20 was a reason for optimism in the European institutions’ offices. This optimism was based on the hope that Joe Biden would remove the trade tariffs on European products imposed by Trump’s Administration. Nevertheless, after his arrival at the White House, Biden has agreed with Trump’s international trade policy, at least for now.
This decision was confirmed by the United States Trade Representative (USTR), run by the attorney Katherine Tai, in a public report posted on February 12th 2021 on The Daily Journal of the United States Government. This report shows that the USTR, along with the affected U.S. industry, considers unnecessary for the moment a revision of Section 301, which is the one involving the implementation of the United States rights on trade tariffs. Therefore, the last revision carried out is the one from the beginning of January, while Trump was still in office.
Despite all, according to the statements made by Josep Borrell, High Representative of the EU for Foreign Affairs, Europeans keep looking forward to the opportunity to renegotiate trade policies sometime in the next four years governed by Biden Democratic Administration.
Trade between the U.S. and China
Political relations between the United States and China have been characterized in recent years by growing rivalry and constant retaliation. It is clear that both States are commercial giants seeking to lead the global trade race. During the past year, other significant factors have come into play in such a tense scenario: COVID-19 and its consequent economic crisis.
Meanwhile, the newly inaugurated Biden Administration has assigned to Katherine Tai the command of the United States Trade Representative (USTR), perhaps in an attempt that with this lawyer of Asian descent, bilingual in English and Mandarin, and expert in international trade policies, the improvement of the relations with the Asian giant will finally be achieved.
Update August 21, 2020: Reduction of tariffs on a small list of products
The European Union and the United States announced last Friday (August 21, 2020) an agreement to reduce the tariffs that are mutually imposed on a small list of products.
This agreement, although not very significant in terms of its economic impact, given that it only affects imports and exports worth 271 million dollars annually; can be interpreted as a slight sign of reconciliation that aspires to have continuity, as expressed in the same statement by Robert Lighthizer, United States Trade Representative, and Phil Hogan, European Union Trade Commissioner: “We intend for this package of tariff reductions to mark just the beginning of a process that will lead to additional agreements”.
In the agreement, which will apply retroactively from August 1 of this year, the EU will eliminate import duties on live and frozen lobster from the United States (the tariff is currently between 8% and 12%), whose exports to the EU amounted to 111 million dollars in 2017.
In return, the US will reduce tariffs on imports from the EU of certain products including prepared meals, glassware, surface treatment products, propellant charges, lighters, and lighter parts by 50% which together all add up to an annual value of about 160 million dollars.
This agreement does not affect the 7.5 billion dollars annually in levies that the US imposed in October of 2019 with an ad valorem tariff of 25% on a long list of European food products such as wine, olive oil, cheeses, olives, etc.
Updated August 12, 2020: Maintenance 25% tariffs
The United States announced this Wednesday, August 12 of 2020 that it will maintain the 25% tariff that was imposed on the European Union in October 2019 for the dispute that the countries have before the World Trade Organization over the aid they gave to Airbus.
There will only be a few small changes to the product list that will take effect from September 1: some products from Greece and the UK will be removed from the list, but their value will be offset by adding products from Germany and France. Spanish products will not undergo any modification.
Washington maintains the tariffs because it considers the measures taken by Airbus and the EU insufficient, despite the fact that Airbus announced on July 24 that it will increase payments on the loans it received from Spain and France in an attempt to reverse the tariffs imposed by the United States: “The European Union and its member states have not taken the necessary actions to comply with the decision of the WTO,” said Robert Lighthizer, the US trade representative, on Wednesday. “The United States will begin a new process with the European Union in an effort to reach an agreement that remedies conduct that harmed the aviation industry and American workers,” Lighthizer added in a statement.
Despite the maintenance of the tariffs, part of the sector is relieved that Washington hasn’t increased them, as it has been threatening in recent months with potential tariffs of up to 100% ad valorem, although some hoped that they would be eliminated.
Updated March 2020: Trump Administration raises tariffs on European aircraft
The Trump Administration enacted its planned duty rate increase on March 18, 2020. This includes a raise in the tariff it had imposed on European aircraft to 15% and adding a 25% tax on French and German butcher and kitchen knives to the list of tariffs on European products.
In February 2020, the Trump administration announced it would raise tariffs on European aircraft from 10% to 15% in an effort to pressure Europe in a long-running trade dispute over airplane subsidies to Airbus. The Trump administration enacted its planned duty rate increase on March 18, 2020.
These tariffs are part of a 15-year-old complaint about subsidies European governments gave Airbus, competitor of American plane maker Boeing.
On October 18, 2019, Washington already set a 10% tariff on European aircraft imports and a 25% tariff to a list of European food products, such as Spanish olives and cheese. This happened after the World Trade Organization (W.T.O.) granted the United States permission to try to recoup its losses by taxing as much as $7.5 billion of European exports annually. Those tariffs are expected to continue until Europe removes these subsidies or the two governments come to a negotiated resolution.
European officials condemned the decision to move forward with the new increased tariffs in the face of the COVID-19 health crisis and a potential recession instead of cooperating to battle the coronavirus outbreak that will potentially devastate the global economy.
Airbus spokesman Clay McConnell urged the U.S. government to work out an agreement with the European Union (E.U.) and end this old dispute. “The evolution of the COVID-19 pandemic and its impact on the aviation industry reinforces the need to put this outdated case behind us and find a sustainable way forward for our industry,” McConnell said.
Moreover, according to McConnel, the tariff increase will not be paid by Airbus, but by U.S. airlines that have already been suffering the crisis of Boeing with the aircraft 7373 MAX, and now are hammered due to the virus outbreak and the travel bans.
Airbus will continue its conversations with its American clients in the hope of reducing the impact of these increased tariffs and hopes that the U.S. Trade Representative’s office changes its position, according to Reuters.
On the other hand, the U.S. Trade Representative’s office said that the U.S. keeps looking for negotiation and hopes that the new tariffs will urge the UE to halt illegal government subsidies to Airbus. “It’s important to keep in mind that the W.T.O. determined the EU’s illegal subsidies to Airbus cost our aerospace companies and workers hundreds of billions of dollars in lost revenue,” said the spokesman.
Furthermore, the W.T.O. is expected to rule in May on a parallel case, in which the EU has claimed that the United States provides its own unfair subsidies to Boeing, and is expected to give the EU the go-ahead to apply counter-tariffs on American imports to Europe.
US tariffs on European products: wine, olive oil, cheese, and others
In addition, the U.S. has also set tariffs of 25% to a long list of European food products, including products from Spain (such as fresh cheese, olives, and olive oil, among others), from France (wine, cheese), from Germany (coffee, cookies, waffles), United Kingdom (whiskey, sweets) or Italy (cheese), as well as to products from other 20 European countries.
Specifically, these are some of the increased latest duties imposed on European products between last October and March:
- 25% duties on single-malt Irish and Scotch whiskies.
- 15% tariffs on various garments and blankets from the U.K.
- 25% tariffs on coffee and certain tools and machinery from Germany.
- 25% duties on various cheeses, olive oil, and frozen meat from Germany, Spain, and the U.K.
- 25% tariffs on certain pork products, butter, and yogurt from multiple countries.
- 25% tax on French and German butcher and kitchen knives.
Although these tariffs are permitted under the rules of the W.T.O., they have raised complaints from consumers and industries in the U.S. Wine tariffs have done disproportionate damage to American businesses and consumers, according to Harry Root, founder of the U.S.-Wine Trade Alliance which represents among other wine distributors.
Negotiators have discussed the possibility of an agreement —in the context of negotiations toward a potential broader trade deal between the U.S. and the E.U. — but so far have not been able to reach a successful agreement.
Complete list of European products subject to new tariffs
For a complete list of European products subject to the tariff increase, check these links (Source: Office of the United States Office of the Representative):
December 12, 2019: Review of Action: Enforcement of U.S. WTO Rights in Large Civil Aircraft Dispute, Annex I and Annex II
February 21, 2020: Notice of Modification of Section 301 Action: Enforcement of U.S. WTO Rights in Large Civil Aircraft Dispute, Annex I and Annex II modifications to previous list
As tensions with Europe have increased, the Trump administration’s initial trade deal with China went into effect on February, with tariffs on more than $110 billion of Chinese products dropping from 15% to 7.5%. Tariffs on $250 billion worth of Chinese goods will remain at 25%.
The spread of COVID-19 worldwide and the economic impact, as a result, will most likely affect international trade relations. Tariffs will continue to play an important role in modulating those relations between countries. In the following months, we should keep an eye on the result of the W.T.O. parallel case with Boeing since the outcome could start the negotiations to eliminate or reduce the tariffs´ increase experienced by some products from Europe in the last months.