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EU wins tariff clearance on $4 billion of U.S. imports in Boeing case

BRUSSELS/PARIS/WASHINGTON (Reuters) - The European Union on Tuesday won the right to impose tariffs on $4 billion of U.S. goods in retaliation against subsidies for planemaker Boeing BA.N - deepening a record trade spat that has already prompted Washington to slap duties on EU imports.

The World Trade Organization tariff award, which confirms a decision first reported by Reuters on Sept 30, threatens to intensify transatlantic trade tensions just three weeks ahead of the U.S. presidential election.

However, negotiators on both sides say it could also lead at last to discussions to resolve a 16-year legal battle over subsidies to aircraft manufacturers Boeing and Airbus AIR.PA.

Both the United States and the EU have signalled interest in settling the dispute over planemaker subsidies, while accusing the other of refusing to talk seriously.

Tuesday’s decision, delayed by the COVID-19 pandemic, follows a WTO ruling last year prompting Washington to begin imposing tariffs on $7.5 billion in EU goods over state aid for Airbus, which has sites in Britain, France, Germany and Spain.

Combined, the two cases represent the world’s largest ever corporate trade dispute.

Consuming thousands of pages of testimony and an estimated $100 million in costs since 2004, the aircraft spat has tested the resolve of the WTO, which is busy selecting a new leader.

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The state of Washington has since repealed an aerospace tax break that benefited Boeing, while Airbus has announced it will increase loan repayments for the A350 plane to France and Spain in bids to settle the matter.

Boeing shares fell 2%.

The U.S. government said there was no legal basis for the EU to impose tariffs since the contested tax break had been eliminated, a view echoed by Boeing which said it had already complied with WTO findings.

The EU says the same is true of U.S. tariffs imposed against subsidies to the A380 superjumbo, which is being taken out of production. But the two sides were left sparring over how genuinely they were trying to end decades of aerospace support.

U.S. Trade Representative Robert Lighthizer said any move by the EU to slap tariffs on U.S. goods would be “plainly contrary to WTO principles and will force a U.S. response.”

The European Commission, backed by Airbus, said it would pull back from imposing duties if Washington withdrew its existing tariffs on European goods such as wine and whisky. The two sides could then work together to find common ground.

FILE PHOTO: European Union flags flutter outside the European Commission headquarters in Brussels, Belgium August 21, 2020. REUTERS/Yves Herman/File Photo

The latest chapter in the mammoth dispute rattled the spirits industry on both sides of Atlantic, which urged restraint and an end to tariffs. EU producers have already been hit with tariffs and U.S. makers are now in EU cross hairs.

TARGET LIST

U.S. products on a target list for EU sanctions include airplanes, wine, spirits, suitcases, tractors, frozen fish and produce from dried onions to cherries.

The earliest the EU could act is after a WTO meeting on Oct 26, but few analysts expect it to do so before U.S. elections.

The $4 billion tariff window means European airlines that import Boeing jets could have to pay tariffs expected to match U.S. border taxes on Europe-built Airbus jets, currently 15%.

But Boeing's top European customer Ryanair RYA.I has called on Boeing to pay the tariffs and is expected to use this as leverage in negotiations to buy more of its grounded 737 MAX.

The latest set of tariffs also potentially create a tricky situation for Britain, which despite its historic support for Airbus is in the midst of negotiating trade deals with both Brussels and Washington as it completes its exit from the EU.

Trade sources said Washington and Brussels had already informally begun exploring the outlines of any future talks to end the dispute, while publicly maximising their stance.

On top of Tuesday’s $4 billion, European sources have said the EU could also use $4 billion of dormant tariffs awarded in an earlier case, giving it firepower similar to Washington’s.

U.S. sources say the previous award, allowing the EU to retaliate against former perks for U.S. exporters, is no longer valid and that any deal must include verifiable enforcement.

Reporting by Philip Blenkinsop, Tim Hepher, Andrea Shalal; editing by Jason Neely and Jane Merriman

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