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WTO allows U.S. to retaliate with tariffs on EU exports because of Airbus subsidies

A World Trade Association decision Wednesday gives the United States the all-clear to slap tariffs on $7.5 billion worth of products such as wine, cheese and olives in retaliation for subsidies that various EU nations give to plane maker Airbus.

Tariffs OK on $7.5B worth of products such as wine, cheese and olives

An employee fits the nose cone to a Rolls-Royce jet engine which will be attached to an Airbus jet. The U.S. and Europe have been squabbling over aerospace subsidies for more than a decade. ( Chris Ratcliffe/Bloomberg)

The World Trade Organization says the United States can impose tariffs on up to $7.5 billion US worth of goods from the European Union as retaliation for illegal subsidies that the bloc gave to plane-maker Airbus — a record award from the trade body.

The move green-lights the Trump administration to slap countermeasures on the 28-member bloc and follows a WTO ruling in May 2018 on the Airbus subsidies.

Wednesday's award doesn't end the long-running trans-Atlantic dispute over aircraft: WTO arbitrators are expected to rule next year on how much the EU can impose in tariffs following a separate decision that went against Boeing.

The U.S. has already announced plans to impose tariffs on EU cheeses, olives, whisky, as well as aircraft and aircraft parts. Wednesday's decision saw a fine-tuning of that list.

The Trump administration put 25 per cent tariffs on French wine, Italian cheese and single-malt Scotch whisky — but spared Italian wine, pasta and olive oil and all EU-made chocolate.

The U.S. Trade Representative's Office released a list of hundreds of European products that will get new tariffs, including cookies, salami, butter and yogurt — but in many cases applied to only some EU countries, and included German and British camera parts, as well as U.K.-made blankets, sweaters, pullovers, cashmere items and wool clothing.

They will also apply to olives from France, Germany and Spain, Italian cheeses, EU-produced pork sausage and other pork products other than ham, and German coffee.

The biggest single tariff imposed is a 10 per cent levy on EU-made airplanes, a levy that could hurt U.S. airlines that have ordered billions of dollars of Airbus aircraft.

The new tariffs are to take effect on Oct. 18.

The dispute over aerospace subsidies has expanded into other products and the WTO ruling opens the door to tariffs on French wine. (Balint Porneczi/Bloomberg)

The EU's top trade official responded to the announcement by saying the bloc would prefer to reach a settlement with the United States to avoid a tariff war — but it will respond if President Donald Trump imposes new duties on EU products.

EU Trade Commissioner Cecilia Malmstrom said a tariff war "would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time."

"If the U.S. decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than to do the same," she said.

The arbitration award is the largest among about two dozen at the WTO since it was created nearly 25 years ago. The previous record award of $4 billion was in 2002, when the WTO ruled against the U.S. over the Foreign Sales Corporation law that allowed for illegal subsidies to some U.S. businesses.

'If the U.S. decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than to do the same,' Cecilia Malmstrom said. (Eric Vidal/Reuters)

Unlike the Trump administration's unilateral tariffs on billions of dollars-worth of steel, aluminum and other goods from China, the EU and elsewhere, the retaliatory tariffs authorized in the Airbus case enjoy a stamp of approval from the WTO — an organization that Trump has repeatedly criticized.

A May 2018 WTO ruling found that EU "launch aid" for Airbus had resulted in lost sales for Boeing in the twin-aisle and very-large-aircraft markets. The ruling centred on two aircraft: Airbus's 350XWB — a rival of Boeing's 787 — and the double-decker A380, which surpassed the Boeing 747 as the world's largest commercial passenger plane.

Dispute goes back to 2004

The case itself dates to 2004, a testament to the plodding and thorough rhythm of the Geneva-based trade body.

The Trump administration has been demanding reform of the WTO, and has been blocking new appointments to its crucial Appellate Body — which could be rendered inactive in December unless the U.S. gets its way.

The WTO is already examining a dozen cases involving U.S. tariffs and countermeasures brought by its trading partners over the administration's steel and aluminum tariffs. Trump has insisted the move is needed to protect U.S. national security interests, but the Europeans claim it is simply protectionism and breaks global trade rules.

The EU introduced "rebalancing" tariffs on about $3 billion US worth of steel, agricultural and other products. Trump has also threatened to slap duties on European automakers.

With files from Reuters

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