Transatlantic relations are getting a boost with the U.S. and EU on the cusp of a deal to resolve a 17-year dispute over aircraft subsidies. The breakthrough, set to be finalized today during President Biden's first European meeting in Brussels, would lift the threat of billions of dollars in punitive tariffs via a multiyear accord on subsidy limits. It would also remove a sizable shadow that's been hanging over the planemaking industry, as well as threats that other consumer goods could be targeted with retaliatory levies.
Backdrop: The dispute is one of the longest-running battles at the World Trade Organization. It started in 2004 when the U.S. withdrew from a 1992 aircraft subsidy pact, alleging that Airbus (OTCPK:EADSF) had managed to equal Boeing's (NYSE:BA) share of the jet market due to subsidized government loans, while the EU counter-sued over unfair R&D support and subsidized tax incentives. The case wound through the WTO over the years, but in 2019, it awarded partial victories to both planemakers. While they attempted to work things out over the coming years, billions of dollars in tariffs were progressively imposed by each side, until the two suspended the duties in March 2021, setting a four-month deadline to work out a deal.
The current standstill agreement would likely include a five-year suspension of tariffs and remove claims for compensation. The U.S. would also withdraw a demand that would see it get advanced notice of any future public loans to Airbus. Another critical detail is the benchmark to be used when determining whether the interest on a future loan is market-compatible.
Competition is rising: The standstill agreement would arrive as President Biden pledges to reset relations with European partners, while taking a hard-line stance on China. Beijing has its own ambitions to become a global player in commercial aircraft and even plans on delivering its C919 to its first client at the end of 2021. "There's no question that the rise of China's aircraft industry is ... on everybody's proverbial radar," U.S. Chamber of Commerce Senior Vice-President Marjorie Chorlins told reporters on Monday, noting the country's "heavy subsidization" of its industries and threats posed by its state-driven economic model.
Update: "We have resolved these disputes because we are putting away our litigation briefcases," U.S. Trade Rep. Katherine Tai declared. The U.S. and EU are now focused on "what is going to be best for competition between us in the context of a world where our industries and workers will be facing competition like we’ve never seen before."