The World Trade Organization says the United States can impose tariffs on up to $7.5 billion worth of goods from the European Union as retaliation for illegal subsidies that the bloc gave to plane-maker Airbus — a record award from the trade body.
The move green-lights the Trump administration to slap countermeasures on the 28-member bloc and follows a WTO ruling in May 2018 on the Airbus subsidies.
Wednesday's award doesn't end the long-running trans-Atlantic dispute over aircraft: WTO arbitrators are expected to rule next year on how much the EU can impose in tariffs following a separate decision that went against Boeing.
The U.S. has already announced plans to impose tariffs on EU cheeses, olives, whiskey, as well as aircraft and aircraft parts. Wednesday's decision may require fine-tuning of that list.
Such tariffs can take effect no earlier than mid-October because a key WTO panel needs to formally sign off on them first. But they will likely have an impact on key agricultural and other sectors of the European economy, at a time when other tariff battles have dented global trade growth.
The EU's top trade official responded to the announcement by saying the bloc would prefer to reach a settlement with the United States to avoid a tariff war — but it will respond if President Donald Trump imposes new duties on EU products.
EU Trade Commissioner Cecilia Malmstrom said a tariff war "would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time."
"If the U.S. decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than to do the same," she said.
The arbitration award is the largest among about two dozen at the WTO since it was created nearly 25 years ago. The previous record award of $4 billion was in 2002, when the WTO ruled against the U.S. over the Foreign Sales Corporation law that allowed for illegal subsidies to some U.S. businesses.
Unlike the Trump administration's unilateral tariffs on billions of dollars-worth of steel, aluminum and other goods from China, the EU and elsewhere, the retaliatory tariffs authorized in the Airbus case enjoy a stamp of approval from the WTO — an organization that Trump has repeatedly criticized.
A May 2018 WTO ruling found that EU "launch aid" for Airbus had resulted in lost sales for Boeing in the twin-aisle and very-large-aircraft markets. The ruling centered on two aircraft: Airbus' 350XWB — a rival of Boeing's 787 — and the double-decker A380, which surpassed the Boeing 747 as the world's largest commercial passenger plane.
The case itself dates to 2004, a testament to the plodding and thorough rhythm of the Geneva-based trade body.
The Trump administration has been demanding reform of the WTO, and has been blocking new appointments to its crucial Appellate Body — which could be rendered inactive in December unless the U.S. gets its way.
The WTO is already examining a dozen cases involving U.S. tariffs and countermeasures brought by its trading partners over the administration's steel and aluminum tariffs. Trump has insisted the move is needed to protect U.S. national security interests, but the Europeans claim it is simply protectionism and breaks global trade rules.
The EU introduced "rebalancing" tariffs on about 2.8 billion euros ($3 billion) of U.S. steel, agricultural and other products. Trump has also threatened to slap duties on European automakers.
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