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WTO has ruled US can impose tariffs on EU

Oct 10,2019 - Last updated at Oct 10,2019

The World Trade Organisation (WTO) has ruled that the United States has the opportunity to impose tariffs of $7.5 billion worth of European goods over illegal EU subsidies to Airbus. The decision opened the door to a broader trade war with the EU. The WTO has revealed that the aircraft maker’s US rival, Boeing, received billions of dollars of illegal subsidies, whereas the EU did not decide yet the actions can take in response to it. Later this month, the US is waiting to receive the final WTO approval; it plans to impose tariffs of 10 per cent on European aircrafts and 25 per cent on a variety of agricultural and industrial products. Hundreds of European products will get new tariffs, and these tariffs will be valid as early as in the middle of October, according to the list prepared by the US Trade Representative’s Office.

Based on the discussions with the EU, the tariffs will be re-evaluated continually in order to bid resolve the dispute. The maximum tariff imposed will not exceed a 10-per cent levy on EU-made aircrafts. Responding to the US airlines’ complaint, billions of dollars have been ordered from Airbus aircraft. After 15 years of litigation, the WTO has confirmed that Europe has been providing massive subsidies to Airbus that have seriously injured the US aerospace industry and US workers. The WTO says that the US is entitled to impose countermeasures in response to the EU’s illegal subsidies.

As an international trade rule, it is forbidden for countries to provide financial aid that gives domestic firms an unfair trade advantage over foreign competitors. The EU is awaiting a response from the WTO over its complaint that Boeing's rival Airbus has received improper government support with generous multibillion-dollar subsidies. The trade war between Washington and Beijing has weakened global trade and economic growth. European experts have expected that the trade sanctions on EU imports will risk causing damage on both sides of the Atlantic.

The prospective tariffs from the US side are likely to trigger tit-for-tat tariffs from the EU that will be the main reason for creating new problems for markets and businesses all over the world. The US had required the permission of the WTO to impose 11.2 billion dollars of EU goods. In response, Brussels is considering imposing a tariff of around 10 billion dollars on US goods. To avoid the long dispute between the US and the EU, the solution is to pull back from the brink and find a settlement, otherwise the tariffs war will not lead immediately to achieve a peace deal. In order to maintain the US economy and avoid causing collateral damage, the US importers urged the decision-makers to be selective when choosing industries to hit by imposing tariffs on the EU.

The effectiveness of US tariffs on China has brought China back to the negotiating table on trade while Japan has been convinced to open its agricultural market to US products. So economists predict that Washington is unlikely to go beyond the opportunity to apply tariffs in the case of aircraft subsidies. Airbus stated that its contribution to the US industry consists of more than 4,000 direct jobs and local assembly plans, and therefore, tariffs may lead to a “lose-lose” trade war.

In my opinion, the trade relations between the US and its closest allies are set to sour even as the US-China trade war drags on. Downside risks remain high, whilst the 2020 projection depends on a return to more normal trade relations. The US and the EU have to reach a negotiated settlement before creating serious damage to the aviation industry as well as to trade relations and the global economy.

 

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