WTO slaps sanctions on the EU

The President plans on imposing tariffs on the European Union.

The President wants a trade deal with China.

The President does not like the WTO.

The World Trade Organization has ruled that the US is allowed to impose record tariffs on $9.7 billion of the goods it imports from the EU in retaliation to illegal subsidies given to Airbus by European governments. This is near twice the previous record of $6 billion set in 2002. But why has it reached this decision?

The World Trade Organization is an intergovernmental organization that regulates trade between different countries. It was formed in 1995 under the Marrakesh agreement and has includes 123 nations.

The American Boeing and European Airbus are primarily aircraft manufactures; they have a duopoly on commercial aircraft, resulting in an intense rivalry between the two. Both companies have also been involved in a dispute since 2005 when the US filed a case arguing that EU loans to Airbus were illegal state subsidies. In 2010, The World Trade Organisation ruled in favour of the US. However, the US then complained that the EU had not complied with the ruling, leading to the continuation of the ‘tit-for-tat’ row.

Boeing is also in financial trouble, following their disastrous 737-Max, which was involved in two major crashes within a few months. These horrific accidents were caused by Boeing rushing to complete an updated version of the fifty-year-old 737 with new, poorly designed engines to compete with the Airbus A320neo. This scramble to the market was due to a 2011 order from American Airlines for a 737 with new engines before Boeing had even announced that they were going to produce such an aircraft. These accidents have resulted in regulatory authorities, such as the FAA, grounding the 737 until further notice, and cancellations of orders for the 737-Max. Because of this, in July 2019 Boeing reported the worst financial losses in its history, losing $3.38 billion for the previous quarter. These sanctions will help Boeing remain competitive in the crowded aerospace market, where its reputation has been hit.

Later in October 2019, The U.S Government placed tariffs on EU goods due to this conflict. The main target of this sanction, Airbus, now has to pay 10% on aircraft imported from Europe. The consequences of this also include a tax of 25% on German and British industrial and agricultural products and Spanish, Italian, and French food products. French Finance Minister, Bruno Le Maire said: “We are offering the hand of friendship, and I hope the US listens to the voice of reason”, describing his wish for the situation to change.

These sanctions come at a time when there are trade tensions strain the global economy. In March 2018, the Trump administration announced 10% tariffs on aluminium and 25% tariffs on steel imported into the US, prompting the EU to impose $2.86 billion worth of duties on American goods such as motorbikes and whiskey.

The USA is already engaged in a trade war with China, with Beijing planning to place $3.6 billion in levies on American goods, following clearance from the WTO. However, the President of the United States, Donald Trump, believes that a trade deal is expected.

The EU could exact revenge on the USA next year when the WTO has to decide if the US was in violation of subsidy rules when it gave tax breaks to Boeing. It is highly likely they will rule in favour of the EU. The German foreign minister, Heiko Maas, has also threatened to retaliate stating the EU “will now to have to react and, once they have been approved by the WTO, impose its own punitive tariffs”. One way this spat could end is with a trade deal, which Angela Merkel’s spokesman, Steffen Seibert also suggested stating, “Our aim is to achieve an agreement with the US on both of our subsidies in the aerospace industry”. Le Mair has said France is “ready to respond firmly with our European partners". He believes that "A friendly resolution to the Boeing/Airbus dispute is the best solution, and all the more so given that Europe could impose sanctions on the US next year.”

This spat has lasted 15 years and may take a long time to be resolved, with either side unlikely to concede. The USA has defended Boeing, whose representatives have reacted with the following statement: “we trust that our example will prompt Airbus and the European Union to immediately bring themselves into full compliance with the substantial rulings against these parties by the WTO”. In addition, the UK government has responded to this by replying that “The UK government is clear that resorting to tariffs is not in the interests of the UK, EU or US. We are working closely with the US, EU and European partners to support a negotiated settlement to the Airbus and Boeing disputes. We are also seeking confirmation from the WTO that the UK has complied fully with WTO rulings regarding support to Airbus, and should not be subject to tariffs.”

Both sides seem to desire a resolution to this dispute, which is harming the economies of both nations. One way this could be done is through a trade deal. The President has also labelled the World Trade Organisation broken, displaying severe disdain for the WTO and reportedly wants to pull the United States out of the World Trade Organization. In summary, although the WTO has sanctioned the EU, it is highly likely that it will treat the US no differently. Therefore, there is no end in sight for the apparent rift between the EU and the USA.

The World Trade organisation has ruled that the US is allowed to impose record tariffs on $9.7 billion of the goods it imports from the EU in retaliation to illegal subsidies given to Airbus by European governments. This is near twice the previous record of $6 billion set in 2002. But why has it reached this decision?