Airbus Ruling May Strain Trade Ties With Europe

Posted May 15, 2018 8:42 p.m. EDT

PARIS — The World Trade Organization opened the door for the Trump administration to impose billions of dollars in retaliatory sanctions on European imports with a landmark ruling Tuesday that Europe had illegally subsidized the aircraft giant Airbus to the detriment of its U.S. competitor Boeing.

The ruling could further strain trans-Atlantic trade relations, which have grown increasingly tense since President Donald Trump vowed to impose tariffs on steel and aluminum imports from Europe and to sanction European Union companies doing business in Iran following his withdrawal from the 2015 nuclear accord.

“President Trump has been clear that we will use every available tool to ensure free and fair trade benefits American workers,” Robert Lighthizer, the U.S. trade representative, said after the ruling. “Unless the EU finally takes action to stop breaking the rules and harming U.S. interests, the United States will have to move forward with countermeasures on EU products.”

A negotiated settlement remains possible, and the same appellate body that ruled Tuesday must still decide the other half of the dueling claims: allegations that the United States improperly subsidized Boeing. Should the United States decide to retaliate, any countermeasures could take months to decide.

“The broader context — of tariffs and unilateral trade measures — is unpleasant and makes this a poorly timed development,” said Richard Aboulafia, vice president of analysis at Teal Group Corp., a consulting firm in Fairfax, Virginia. “But there is still the hope of a negotiated settlement and perhaps even a new set of mutually agreed rules.”

Calling it “the largest-ever WTO authorization of retaliatory tariffs,” Boeing predicted that the U.S. government could impose tariffs worth billions of dollars on European Union imports. Those tariffs would make up for the business that Boeing claims it lost when Europe injected around 22 billion euros ($26 billion) in financial support to help Airbus develop the superjumbo A380 and the widebody A350 airliners. Boeing has estimated that it suffered commercial damages worth between $7 billion and $10 billion as a result.

“Today’s final ruling sends a clear message: Disregard for the rules and illegal subsidies is not tolerated,” Dennis A. Muilenburg, Boeing’s chief executive, said in a statement. “The commercial success of products and services should be driven by their merits and not by market-distorting actions,” he said.

The ruling is the latest action in an acrimonious 14-year battle between the aviation rivals, which have undertaken a seemingly endless spate of lawsuits and counterlawsuits before the trade body, each claiming the other side received unlawful governmental support in a bid to achieve dominance in the world’s skies.

The World Trade Organization previously determined that both companies received illegal subsidies in various forms, and ordered their respective governments to halt them.

The ruling Tuesday found that the EU had failed to comply by continuing to issue Airbus preferential government loans with low interest rates for the A350 and the A380. The decision cannot be appealed.

But the same panel rejected claims by the United States that Europe had issued cheap loans for Airbus’ A320 and A330 models, leading the EU to claim a sort of victory.

European Trade Commissioner Cecilia Malmstrom said that the ruling rejected “the vast majority” of claims by the United States and Boeing. She added that the EU would “take swift action to ensure it is fully in line with the WTO’s final decision in this case.” Airbus chief executive Tom Enders called the ruling a “significant legal success for the European aviation industry.”

Boeing, for its part, is not out of the woods either. The same appellate body will decide in coming months whether the United States complied with a 2012 order to halt subsidies in the form of tax breaks from Washington state, where Boeing is based, for certain types of jumbo jets.

Enders of Airbus ratcheted up his rhetoric, accusing Boeing of relying on a “Washington state corporate welfare scheme” and insisting that the latest ruling was “only half the story — the other half coming out later this year will rule strongly on Boeing’s subsidies and we’ll see then where the balance lies.”

“The result is simple: Airbus pays back its loans, Boeing pays back nothing and continues to exploit the generosity of the U.S. taxpayer,” he said. He added, “Despite Boeing’s rhetoric, it is clear that their position today is straightforward healthy: They have half the market and a full order book, they have clearly not been damaged by Airbus repayable loans.”

Should the upcoming ruling go against Boeing, the European Union could itself be in a position to demand retaliatory tariffs on U.S. imports. Boeing and Airbus have had to navigate rising trade tensions, first over Trump’s threat over steel tariffs, and most recently over his decision to pull out of the Iran nuclear accord.

Both companies have effectively been required to halt sales to Iran, which desperately needs new aircraft to rebuild an aging fleet, after the United States in 2016 allowed each company to have licenses to do business with the country.

Boeing, fresh off a dispute over subsidies with the Canadian jet maker Bombardier, could also figure heavily in another potential trade fight, as a possible target for retaliatory Chinese tariffs. But Trump has more recently struck a softer tone with China, including a willingness to rethink penalties against the major Chinese telecommunications company ZTE.

“Given the Trump administration’s agenda, it’s hard to see how this ruling doesn’t get politicized,” said Aboulafia of Teal Group. “But then again, Trump’s ZTE reversal shows that politicization can be highly unpredictable.”