EU Weighs When to Hit U.S. Products With Tariffs Approved by WTO

This content was published on October 13, 2020 - 16:35

(Bloomberg) --

The European Union won World Trade Organization permission to hit $4 billion of American goods with tariffs but will likely hold fire until after the U.S. presidential election next month, according to three officials familiar with the EU’s thinking.

The size of the WTO decision over illegal state aid the U.S. provided to Boeing Co. was reported by Bloomberg last month. The award is lower than the $7.5 billion judgment granted to the U.S. last year in a parallel dispute against Boeing’s European rival, Airbus SE.

The EU has drawn up a list of American products to hit with levies. And even though it’s targeting politically important industries for President Donald Trump and his Republican allies -- including aircraft, coal, farm products and seafood -- the bloc will likely hold off until after the Nov. 3 election to see if a deal is possible, said the officials, who asked not to be identified discussing private negotiations.

By waiting, the 27-nation EU can try to reboot flagging settlement talks with Trump while waiting to see if discussions might fare better in the event former Vice President Joe Biden, the Democratic challenger who’s leading several national polls, wins the election. Both Boeing and Airbus called for renewed talks after the decision was made public.

Shares of Boeing fell 2% at 12:23 p.m. in New York while Airbus dropped 3.5%.

The EU’s trade chief, Valdis Dombrovskis, said on Twitter that the EU will “immediately re-engage with the U.S. in a positive and constructive manner to decide on next steps. Our strong preference is for a negotiated settlement. Otherwise, we will be forced to defend our interests and respond in a proportionate way.”

He has previously indicated the difficulty in negotiating with the current White House.

“Probably under a new administration it would be easier because we know that the Trump administration is unfortunately supporting this unilateral action in areas of trade which is creating lots of tensions and lots of problems,” Dombrovskis told members of the European Parliament earlier this month.

The U.S. Trade Representative’s office, in a statement after the WTO’s award was announced, said there was still “no lawful basis” for EU tariffs on American goods and indicated the next concession ought to come from Brussels.

“We are waiting for a response from the EU to a recent U.S. proposal and will intensify our ongoing negotiations with the EU to restore fair competition and a level playing field to this sector,” USTR Robert Lighthizer said.

Since mid-2018, the U.S. has imposed tariffs on European steel and aluminum and threatened duties on billions of dollars of goods if France and other nations in Europe follow through with plans to collect taxes on digital companies like Facebook Inc. and Alphabet Inc.’s Google.

The EU is under pressure from some member countries to hit back, particularly from those whose products face U.S. tariffs in the Airbus-aid case. France, whose wine exports have been hit, is among them.

“Given the U.S. is not withdrawing their own taxes on our products, we should rebalance the balance of power and show we are firm,” French Finance Minister Bruno Le Maire and Trade Minister Franck Riester said in a joint statement. “That is why the EU should impose sanctions as soon as the WTO will have formally authorized it.”

The EU has waited for months for the WTO’s green light, which was originally due in the first half of the year and got held up in part by the coronavirus pandemic. The extra delay frustrated EU officials because it extended the period of imbalance during which the U.S. had retaliatory measures in place and the bloc didn’t.

Now, the verdict’s close proximity of the U.S. presidential election has added a complicating political factor by curbing the instinct to strike back before the EU knows with whom it will be dealing in Washington.

Tony Blinken, a foreign policy adviser for Biden’s 2020 presidential campaign, said the long-time senator wants to end Trump’s “artificial trade war” with Europe.

‘Fair Approach’

“Instead of hurting our own citizens and fighting with our democratic allies, we ought to be working on a fair approach to international trade and investment,” Blinken said during a webinar hosted by the U.S. Chamber of Commerce.

While officials in the Trump administration and the EU both argue that now is the moment to engage in negotiations to settle the WTO aircraft dispute -- which has been going on for 16 years -- neither side appears any closer to a reaching a solution.

Lighthizer, who has rejected all the EU’s settlement proposals, said he’s seeking two things: a pledge from Europe to end its subsidies to Airbus and monetary compensation. “It is going to require commitments not to do it again but also paying back some element of the subsidy,” Lighthizer said in a Chatham House event in July.

But European industry officials argue that the U.S. demands are too heavy-handed and the pandemic has complicated the prospects for a deal. Both sides are mulling ways to support their airline industries through a period in which global travel restrictions have hammered passenger air travel.

“Additional duties are not in the economic interest of either side, particularly as we strive to recover from the Covid-19 recession,” Dombrovskis said in a separate statement.

European officials say that, ultimately, a comprehensive deal on aircraft subsidies is in both America and Europe’s best interests if they want to curb China’s massive subsidization of its domestic aerospace industry.

Tuesday’s WTO award marks the one of the last procedural steps before the EU actually gains legal authorization to impose retaliatory duties on U.S. exports -- which will likely occur at the WTO’s next dispute settlement meeting on Oct. 26.

©2020 Bloomberg L.P.

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