EUROPE AND US NEARING AIRCRAFT SUBSIDY DEAL
UNITED STATES AND EU HAVE BEEN SPARRING OVER AIRCRAFT AID SINCE 2004
The United States and Europe are closing in on a deal to end a 17-year-old dispute over aircraft subsidies and end tariffs, while seeking an elusive consensus on how to address competition from China, people familiar with the matter said yesterday.
A deal would lift the threat of a renewed trade war between the two sides that has spilled over to industries from farming to luxury goods and tarnished transatlantic relations.
Talks are converging towards a pair of separate but broadly aligned treaties — one between the United States and European Union, the original parties — and another between Washington and London following Britain’s exit from the European Union, the people said.
US Trade Representative Katherine Tai discussed the dispute in her first face-to-face meeting with EU counterpart Valdis Dombrovskis yesterday ahead of today’s US-EU summit. She travels to Britain tomorrow.
The European Commission, which oversees EU trade policy, is keen to find a solution by July 11 when a suspension of transatlantic tariffs agreed in March comes to an end.
Tariffs
The tariffs on $11.5 billion of goods were progressively imposed from 2019 after the United States and EU both won partial victories at the World Trade Organisation over claims of unfair aid for plane makers Boeing and Airbus.
The dispute has dragged on since 2004 when the United States withdrew from a 1992 aircraft subsidy pact and took the EU to the WTO, claiming Airbus had managed to equal Boeing’s share of the jet market thanks in part to subsidised government loans.
The EU counter-sued over what it termed unfair R&D support and subsidised tax incentives for Boeing.
In a potentially key breakthrough, the United States has watered down opposition to the principle of future public loans for Airbus but insists they must be demonstrably market-based and notified in advance, people familiar with the talks said.
Hurdles remain
But hurdles remain over the extent to which those conditions could effectively allow the United States to approve or block European projects, they added. The European Union is vehemently opposed to any US veto.
Under the 1992 subsidy pact, one third of a project could be financed by direct government support such as loans and cleared indirect R&D support up to 4 per cent of a company’s revenue. One option is to revisit that framework with market rules replacing subsidy quotas and a new cap on indirect R&D support.
China review
When the world’s largestever corporate trade spat first erupted in 2004, Airbus and Boeing dominated the industry and China was still four years away from launching a rival C919 jet. But the rapid rise of China’s aerospace ambitions has fuelled Western concerns over a new publicly funded rival.
In December 2020, outgoing US Trade Representative Robert Lighthizer said the United States and Europe should cooperate in opposing future aerospace subsidies used by China.
The US wants a common review of aerospace funding in non-market economies like China, two of the people said.
Washington is reluctant to bear the burden alone of tackling a potential subsidy threat to the benefit of not just Boeing but also Airbus, which now outstrips Boeing by production volume.