Explanation of the Airbus / Boeing affair: what is there and what happens next

The end of the EU-US fight for aviation subsidies, exploited for seafood and lamb stew in Brussels, marks a major truce in what appeared to be a intractable trade dispute.

For policymakers in Brussels, the hope is that the Airbus-Boeing deal will decisively turn the page on Trump-era trade tensions. For businesses on both sides of the Atlantic, it raises the spectrum of punitive tariffs on goods that stretch beyond aviation to Georgia cane molasses and Italian cheese.

Ma the deal, sealed at the EU-US summit on Tuesday, also marks the start of a long process that requires close cooperation if the two sides are to move the focus away from each other and focus on trade challenges mutual funds from China.

What was the dispute?

It dates back to 2004, when the number of Airbus aircraft deliveries exceeded that of its American rival. Previous knowledge about the subsidies has fallen, with the US administration claiming unjust state aid. The EU contrasted it with its own complaint. The World Trade Organization has opened probes on both sides.

The main criticism of the United States has been focused on the so-called launch aids provided to Airbus by its EU host nations (at the time, the United Kingdom, France, Germany and Spain). The aid provided government funding for the development of new models, reimbursed for royalties on future sales.

The EU responded that Boeing had benefited from US support that violated WTO rules – in particular, tax exemptions from the state of Washington where the company is based. Tit-for-tat disputes followed, as each side accused the other (successfully) of failing to respect WTO decisions.

In 2019, the WTO granted the United States the right to slash tariffs on revenues worth $ 7.5 billion for European products. The U.S. hit list ranges from French wine to German machine tools.

The following year, the EU was allowed to put in more tariff worth nearly $ 4 billion for American goods Its similar eclectic success list ranged from spirits to ornamental fish.

The end of the dispute has become only a serious possibility with the advent of the Biden administration – and a growing mutual awareness that harms companies on both sides, aiding China’s ambitions in the civil aviation market. commercial.

In March, both parties agreed suspends and knows revenge rates for four months, creating a window for negotiations.

What’s in the business?

Its key element is a five-year suspension of punitive tariffs, and the creation of a working group tasked with reaching a final understanding on past and future subsidies.

Boeing, welcoming the agreement, said it “commits the EU to treating launch aid, and leaves in place the necessary rules to ensure that the EU and the US meet that commitment, without the need for further action.” the WTO “.

Graphic line of lower Stock Prices showing the performance of Boeing and Airbus

However, in order to establish some rules for the road, WTO benchmarks will be used to finance R&D, tax exemptions and other types of subsidies. The agreement also requires regular contacts at ministerial level – mainly between EU trade commissioner Valdis Dombrovskis and US trade representative Katherine Tai – to review progress.

Importantly, both parties agreed to cooperate to deal with “non-market economy” participants in the civil aviation market. In a statement, U.S. President Joe Biden explicitly linked this to the fight “against China’s non-trade practices in this sector that give Chinese companies an unfair advantage.”

What are the implications for the aviation sector?

Welcome relief. The sector has been among the the most affected by Covid-19, and the prospect of a serious trade war was an additional costly distraction. Air deliveries remain well below their pre-pandemic levels, as cashless airlines have canceled or deferred orders.

Airbus and Boeing officials also recently indicated that they wanted an establishment. In addition to the coronavirus, its long-standing duopoly faces an increase in Chinese competition, where state-owned aerospace manufacturer Comac is developing the C919, designed to compete with the Airbus A320 and Boeing 737.

Boeing forecast last year China became the world’s largest aviation market, with about 25 percent of all aviation growth in the world coming from the Asian country in the last decade.

“My confidence is high that we will resolve these disputes,” Tai said Tuesday. “We’ve rescheduled our litigation files.”

Where does the EU-US trade agreement go?

A long source of discord ends. Now Brussels is pushing for progress on another: Trump-era tariffs on steel and aluminum.

These have hurt EU producers and led to a separate wave of EU revenge against US consumer goods such as Harley-Davidsons and bourbon. Biden and EU leaders agreed Tuesday to set up a working group on the issue.

Chart the EU trade balance bar with the United States, by product group (billion euro) showing the EU surplus by sector

For the EU, it is a particularly bitter line that the Trump administration has justified the move by marking the EU a national security threat, alongside other traditional US allies such as Canada. But while Canada was subsequently granted by Trump under an updated trade agreement, there has been no relief for the EU.

EU officials say the bloc is now pursuing a dual approach to ending disputes as it moves forward with a positive agenda. To that end, Biden and EU leaders have also agreed to create a “trade and technology council” to cooperate in establishing rules and technical standards for emerging sectors such as artificial intelligence and sensitive technologies such as semiconductors.

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