The United States and the European Union have agreed to suspend a 17-year trade dispute regarding government subsidies to commercial aircraft manufacturers Airbus and Boeing.
The agreement was announced during the EU’s US Summit meeting being held this week in Brussels.
According to reports, today’s agreement would suspend specific existing tariffs that have been authorized by the World Trade Organization (WTO) and a current four-month suspension of mutual tariffs that is already in place will be extended starting in July.
The agreement was essentially consummated because of a shared belief that China is posing a mutual threat in heavily subsidizing its state-owned, Commercial Aircraft Corp. of China, or Comac.
The agreement includes a five-year commitment on the part of the EU to not reinstate duties on $4 billion worth of goods including tractors, certain spirits and luxury goods. Correspondingly, the U.S. agreed to a five-year commitment to not imposing tariffs on $7.5 billion worth of goods on items such as Champagne, cognac and leather goods.
Officials noted that under this deal, all future passenger aircraft will be required to be developed without subsidies.
Reporting on this development, Bloomberg noted:
“It has already taken 17 years four American presidents and tariffs on $11.5 billion worth of transatlantic trade for the U.S. and the European Union to reach a cease fire in their bitter feud over aircraft subsidies.”
European Commission President Ursula von der Leyen indicated on Twitter that this deal: “really opens a new chapter n our relationship because we move from litigation to cooperation on aircraft.”
U.S. Trade Representative Katherine Tai indicated to reporters:
“Today’s announcement resolves a long-standing trade irritant in the U.S.-EU relationship. We have also with the EU agreed to clear statements on acceptable support for large civil aircraft producers and a cooperative process to address that support between our two parties.”
Tai further indicated that tariffs would remain suspended as long as the terms of the agreement are upheld and while the parties work on addressing issues including outstanding subsidies already paid.
According to reporting by Bloomberg, in addition to tariff suspensions, the EU and the U.S. will endeavor further ways to resolve legal aspects of WTO dispute cases, create a set of new bilateral aircraft subsidy disciplines to govern state aid for future aircraft development, and develop new guidelines to address the ramifications of global subsidies.
Today’s agreement further includes the establishment of a deemed trade and technology council that reportedly aims to coordinate common standards for artificial intelligence, supply chain resilience, WTO reform, climate change and other issues.
This week’s agreement reportedly does not specifically include the Trump Administration imposed import tariffs on European produced steel and aluminum, and corresponding EU tariffs imposed on U.S. apparel, bourbon whiskey and Harley Davidson motorcycles. However, reports indicate that both sides are committed to remove such tariffs by the end of this year.
Supply Chain Matters Perspectives
Today’s announcement should be a relief for both commercial aircraft manufacturers in that its level sets the longstanding competitive environment and allows for a mutual focus on Comac and its heavily subsidized aircraft development programs. Overall, today’s development should be viewed as positive for the industry and its associated supply networks.
Boeing issued the following statement today:
“Boeing welcomes the agreement by Airbus and the European Union that all future government support for the development or production of commercial aircraft must be provided on market terms. The understanding reached today commits the EU to addressing launch aid and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action. Boeing will fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected.”
Regarding the global supply networks linked to either of the duopoly industry participants we suppose that there will likely be mixed reaction. The global aircraft industry demand and supply shock incurred by the COVID-19 pandemic had a discernable toll on suppliers, especially smaller suppliers. Some likely have continued dependencies on subsidies to sustain operations and skilled workforces. It remains to be determined as to whether today’s announcement has implications to the broader extended supply network.
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