EU, US Unveil 5-Year Truce In 17-Year Aircraft Trade Spat

The European Union and the United States are on the verge of announcing a truce on Tuesday in their 17-year conflict over aircraft subsidies, bringing to a close one set of Trump-era tariffs which had soured relations between them. As Reuters reminds us, the two sides have been battling since 2004 in parallel cases at the World Trade Organization over subsidies for U.S. planemaker Boeing and European rival Airbus

They agreed in March to a four-month suspension of tariffs on $11.5 billion of goods from EU wine to U.S. tobacco and spirits, which they had imposed in response to the row. On Tuesday they were set to remove them for five years, while still working on an overall deal on what subsidies to allow. Fast forward to today when the U.S. and the EU agreed to extend the temporary ceasefire to a five-year truce in the 17-year dispute over aircraft subsidies. 

Under the Airbus-Boeing deal, all future passenger aircraft will be required to be developed without subsidies, sources said although since this industry is inherently unstable, and subsidies are a must, we can only assume that the deal will quietly collapse in the next 12 months.

According to Bloomberg, the European Commission spent Monday night discussing the accord with member states to get the deal over the line before an EU-U.S. summit in Brussels with President Joe Biden, according to EU officials familiar with the deliberations. A formal announcement is expected later Tuesday.

Commission President Ursula von der Leyen confirmed that negotiations “with our American friends” were heading in the right direction. “I’m positive and convinced we’ll deliver today,” von der Leyen told reporters in Brussels, adding it was in the EU and U.S.’s “common interest to solve it.

“I am very positive that we will find an agreement on the Airbus-Boeing issue today in conversation with our American friends,” von der Leyen told a news conference on Tuesday.

The accord turns the page on one of the key conflicts in Donald Trump’s trade war and sets the stage for a new era of transatlantic cooperation over state aid at a time when China is vying to displace the Boeing-Airbus civil aircraft duopoly. The allies vowed to end a separate dispute over steel and aluminum, in a sign of progress in resetting the relationship under the Biden administration.

The feud dates back to 2004, when the U.S. lodged a legal case at the World Trade Organization against the EU over member-state support to Airbus for commercial aircraft development. A parallel case opened by the bloc argued that Boeing benefited from U.S. subsidies as well as space and military contracts, which defrayed the cost of civilian aircraft development.

In 2019, the World Trade Organization authorized the U.S. to level tariffs against $7.5 billion of EU exports annually over government support for Airbus. The EU then won permission to hit back with levies on $4 billion of U.S. goods.

While the dispute escalated during the Trump administration, the levies, which extend beyond aircraft parts to items like tractors, wine and cheese, were suspended by both sides in March as negotiators worked toward an agreement. The U.K. unilaterally suspended its tariffs with the U.S. in December as it broke from the EU.

According to Bloomberg, the agreement was driven, in part, by a growing awareness among policy makers in Brussels and Washington that China’s state-sponsored aerospace manufacturer Commercial Aircraft Corp. of China, or Comac, is on track to become a legitimate rival in global planemaking by the end of the decade.

The EU and U.S. will also commit at the summit to remove tariffs related to a steel and aluminum dispute, according to a draft of the meeting’s conclusions. In 2018, the U.S. imposed levies on metals exports from Europe on national-security grounds. There has been back-and-forth over the exact language in the drafts of the joint communique, but both sides seem to agree on pushing for a deadline by the end of the year. The EU retaliated against the U.S. steel and aluminum measures by targeting 2.8 billion euros ($3.4 billion) of American imports with tariffs on a range of big-brand products, including Harley-Davidson Inc. motorcycles, Levi Strauss & Co. jeans and bourbon whiskey.

Following the news, shares of Toulouse, France-based Airbus advanced 1.3% as of 10:40 a.m. in Paris, bringing this year’s gain to 27%. Chicago-based Boeing shares were little changed ahead of regular U.S. trading. They have risen 15% year-to-date.