Europe wants the U.S. to immediately cancel its $7.5 billion tariff offensive. Here’s why

July 24, 2020, 11:30 AM UTC

The European Union is demanding that the U.S. immediately lift the tariffs it imposed last year in a 16-year aerospace-subsidies dispute.

The U.S. hit the EU with the tariffs—on products ranging from aircraft to clothing and cheese—last October, as punishment for the illegal subsidies some countries gave to the European plane-making consortium Airbus.

However, on Friday Airbus announced that the last of the subsidies, judged illegal by the World Trade Organization (WTO), had been removed via amendments to investment contracts with the Spanish and French governments. Now, the EU says it’s time for the U.S. to roll back its tariffs.

These are so-called repayable launch investment (RLI) contracts—essentially, advance payments for the launch of a new aircraft that are repaid with interest in the form of “royalties”, but only once a certain sales target is crossed. Airbus took these loans from France, Germany, Spain and the U.K.

This U.S. calls this “launch aid”; the EU calls it “success-sharing.”

In 2016, the WTO agreed with the U.S. and said the A350 loans were illegal subsidies that had lost Boeing hundreds of orders for its competing aircraft, including the 787, 777, 747 and 737. Two years later, the EU and Airbus said they would amend the RLI contracts to comply with the WTO ruling.

With the last of the amendments now out of the way, the EU wants immediate action from the U.S. on those tariffs.

The WTO allowed the U.S. to impose tariffs on up to $7.5 billion in EU goods, and the U.S. has been doing so in gradual stages. It is currently considering adding more EU goods to its tariff list, including things like trucks, chocolate and decaffeinated coffee.

“Arising from the compliance in the Airbus case, we insist that the United States lifts these unjustified tariffs immediately,” EU Trade Commissioner Phil Hogan said in a statement. “The EU has made specific proposals to reach a negotiated outcome to the long-running transatlantic civil aircraft disputes and remains open to work with the U.S. to agree a fair and balanced outcome, as well as on future disciplines for subsidies in the aircraft sector.”

The EU is not without its own weaponry in this dispute.

The WTO has also ruled that Boeing received illegal funding, which gives the EU the right to hit the U.S. with punitive tariffs. The only reason it hasn’t done so yet is that it’s waiting on a WTO arbitrator to specify the maximum amount of tariffs it can levy.

That decision is due in the coming weeks. The European Commission said Friday that, as soon as it knows the approved amount, it will impose tariffs on American imports. That is, unless the U.S. lifts its tariffs on EU imports first.

“In the absence of a settlement, the EU will be ready to fully avail itself of its own sanction rights,” said Hogan.

However, the U.S. claims that the EU can’t impose tariffs on it, because it has eliminated all the illegal subsidies it was giving Boeing. It said in May that the last of the subsidies—a Washington state tax break—had been removed, signaling full compliance with WTO rules.

“This step ensures that there is no valid basis for the EU to retaliate against any U.S. goods,” U.S. Trade Representative Robert Lighthizer said at the time.

Lighthizer’s office had not announced its next move at the time of writing.

The U.S.-EU subsidies dispute has been running since 2004, but under the Trump administration it has become part of a wider set of trade-related arguments.

The U.S. is currently threatening tariffs on French products, in retaliation for a French “digital tax” that will apply to the local revenues of American giants such as Amazon, Google and Facebook. It has also threatened tariffs on European cars, for multiple reasons, including a desire for a U.S.-EU trade deal and a bid to get the EU to crack down on Iran over its violation of the nuclear deal.

However, given that tariffs on imports are usually effectively paid by the consumers and businesses that buy those imports, it remains to be seen how such a move would play in a U.S. election year marked by pandemic-induced economic carnage.