Battle for the skies risks a wider EU-US trade war

The bell has rung on the latest round in the battle between the world’s aviation heavyweights, Boeing and Airbus. This time a long-running phoney war threatens to turn into real hostilities. Under a ruling issued yesterday, arbitrators at the World Trade Organization gave the US the green light to levy tariffs on European goods worth up to almost $7.5bn per year — the largest amount ever authorised. Europe and the US have been fighting over subsidies for their respective aircraft makers for more than a decade, long before President Trump’s feud with China and his “America first” strategy made such trade battles fashionable. Mr Trump has described the EU as “worse than China, just smaller”. He has already threatened to impose tariffs on imported cars as a stick to persuade Europe to include agriculture in any trade talks. Much as he might relish the fight, the prospect of serious economic consequences raises the stakes of a wider trade war between the two blocs. It is time for a negotiated settlement on the underlying issue: how the two sides support their aircraft makers. For the aerospace industry and its cross-border supply chains there is much at stake. Boeing and Airbus have airline customers on both sides of the Atlantic. America’s Delta Air Lines is a major Airbus customer, while in Europe, Ryanair and Lufthansa are big purchasers of Boeing jets. US politicians have acknowledged tariffs could hurt an Airbus facility in Mobile, Alabama, which imports parts to assemble the successful A320 jet and is a big source of local employment. Both sides still enjoy a duopoly on large aircraft manufacturing but competitors are on the horizon, including from China. The potential damage goes well beyond the aerospace industry — under WTO rules, the US is not restricted to levying tariffs on Airbus planes. The list of additional targets identified by the US yesterday, which said it would apply levies albeit in a range of 10-25 per cent, includes Scotch whisky, cheeses and hand tools. The dispute has dragged on for nearly 15 years. The US first raised concerns over alleged illegal repayable launch aid for Airbus in 2004. The EU followed suit and filed a counter-case, alleging illegal state aid to Boeing through government money for defence contracts and tax breaks. In 2010 and 2011 the WTO ruled that both manufacturers had received unlawful assistance. Yesterday’s tariff decision relates to a 2018 ruling by the WTO that the EU had failed to eliminate unlawful aid to Airbus for its medium-sized A350 aircraft and the A380 superjumbo. The EU’s own case against Boeing is running about nine months behind. The WTO in March upheld a finding that the US had not enforced an order in 2012 to stop subsidies to Boeing through a Washington tax break. Neither side has been able to agree on the terms for a meeting to agree a settlement. Airbus yesterday repeated its calls for talks. A decision on EU compliance with the WTO rulings is still pending and could lead to the US having to lift tariffs. An agreed settlement would need to set out recognised rules and disciplines that both the US and the EU can adhere to. Defining the role of governments will be critical. There is now a potential window to strike a new agreement before either Boeing or Airbus launches a new aircraft. It would make sense to settle new terms of trade under a transparent and enforceable system. Otherwise the next 15 years risk a repeat of the past decade and a half of tit-for-tat legal actions — as well as a mounting list of tariffs that could prove extremely costly for the global economy.