U.S. Imposes Tariffs on $7.5 Billion in EU Goods

On October 18, 2019, the United States imposed additional tariffs on a range of imports from the European Union (EU) that include 10% tariffs on civilian aircraft and 25% tariffs on a range of products. The tariffs follow a World Trade Organization (WTO) arbitration decision that commenced on October 2, 2019 authorizing the U.S. to impose tariffs on $7.5B of EU goods annually – the decision is based on the WTO findings that EU subsidies for Airbus are causing significant lost sales for Boeing and is the largest arbitration award in WTO history.

The bulk of the tariffs are applied to imports from the four EU member states that host Airbus – France, Germany, Spain and the United Kingdom. The tariff list covers more than 150 product lines on the Harmonized Tariff Schedule of the United States (HTSUS).

• 10% ad valorem tariffs on new large civilian airplanes and other aircraft from France, Germany, Spain or the United Kingdom
• 25% ad valorem tariffs on a variety of EU products, including agricultural and food products, clothing, tools, and other items

Background

The WTO decision is the latest development in a dispute that began in 2004 after the U.S. began settlement consultations with the EU, and more specifically, France, Germany, Spain and the UK regarding U.S. concerns that subsidies to Airbus violated WTO rules.

The U.S. requested a dispute settlement panel in 2005. After an interim ruling in 2009, the WTO’s Appellate Body confirmed in 2011 that Airbus had received more than $18B in subsidiaries, which is a violation of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) and caused Boeing to lose sales and global market share.

The dispute continued as the U.S. challenged EU assertions that it had complied with the WTO ruling. In 2018, the WTO Dispute Settlement Body (DSB) adopted compliance panel and Appellate Body reports confirming additional violations, and the WTO Arbitrator assessed the level of countermeasures to be authorized.

The USTR began a Section 301 investigation in April 2019 and determined that the EU had violated U.S. rights under the WTO Agreement. The USTR proposed product lists for comment, noting that a final product list would take into account the WTO Arbitrator decision on the appropriate level of countermeasures, and the WTO issued the decision earlier this month.

Increasing U.S.-EU Trade Tensions

The EU also has an ongoing WTO counter case against the U.S. including findings that a Washington state tax incentive for Boeing violated WTO subsidy rules. The WTO will issue a final ruling in early 2020 on whether the U.S. has corrected the practice potentially authorizing the EU to impose tariffs on U.S. products. The EU has indicated that it is likely to respond with retaliatory tariffs upon WTO approval. Other economic measures are possible if the United States and EU are unable to negotiate a settlement on aviation subsidies.

The U.S. tariffs on EU imports raise concerns over an escalation in trade tensions between the EU and the United States that already include 25% U.S. tariffs on EU steel and aluminum and could include U.S. tariffs on autos and auto parts. Given the large trading relationship between the U.S. and the EU, there are concerns that increased trade actions could prove more economically costly than U.S. actions against China.

What Should My Company Do?

The USTR states that it will continually reevaluate the tariffs based on negotiations with the EU. The WTO authorized the U.S. to apply tariffs of up to 100% and the USTR can increase tariffs at any time or change the affected products. To understand the impact of these changes, companies should take the following steps:

• Evaluate the current tariff list to identify products covered by the October 18 tariffs;
• Assess your supply chain or manufacturing inputs to understand the impact of the tariff increases;
• Monitor trade and political developments between the U.S. and the EU to watch for changes in tariffs or trade policy that could affect your supply chains.

U.S. Tariffs on EU Products

Note: The USTR announced on February 14, 2020 that it is raising duties on EU aircraft from 10% to 15%, effective March 18, 2020.

To learn more about how you could be impacted by these additional tariffs, contact us with questions.

© 2019

In December 2019, the USTR issued a notice of its review of its actions in this dispute. It requested comment by January 13, 2020 on whether certain products should remain on the tariff list, whether the tariffs on those products should be increased to 100 percent, its proposed new list of products for the tariff list, and the rate of tariff that should be applied.