People familiar with the matter said that the United States and Europe are stepping up efforts to reach an agreement to end the 17-year-old aircraft subsidy dispute, but may reach a long truce in the recent tariff war.

The agreement to end or suspend the world’s largest corporate trade dispute will ease dozens of other industries affected by the tit-for-tat tariffs that were suspended in March. If there is no progress, they will face a new trade war within a few weeks.

U.S. Trade Representative Katherine Tai discussed the dispute in the first face-to-face meeting with EU Trade Representative Valdis Dombrovskis before the US-EU summit on Tuesday. She will travel to the UK on Wednesday.

The European Commission and the United States, which oversee EU trade policy, are eager to find a solution when the current transatlantic tariff moratorium ends on July 11.

The two parties have been aiming at two treaties-one between the United States and the European Union, one the original contracting parties, and the other between Washington and London after the United Kingdom withdraws from the European Union-new basic rules on aerospace.

One of the people familiar with the matter said that unless a detailed agreement is reached, they can choose a suspension agreement that will delay the resumption of tariffs for several years, but a final decision has not yet been reached.

Reset relationship

After four years of turmoil under former President Donald Trump, US President Joe Biden promised to re-establish relations with European partners.

Trade experts say that reaching an agreement to freeze jet aircraft subsidies conflicts, some of which have been cancelled or eased, will give both parties more time to focus on broader agendas, such as concerns about China’s state-driven economic model.

Since 2019, the United States and the European Union have won partial victories in the World Trade Organization (WTO) due to unfair assistance to aircraft manufacturers Boeing and Airbus, imposing tariffs on goods worth $11.5 billion.

Since the United States withdrew from the 1992 aircraft subsidy agreement and brought the European Union into the WTO in 2004, the dispute has been delayed, claiming that Airbus has managed to equal Boeing’s jet market share, partly because of government loan subsidies.

The EU counterclaimed its so-called unfair R&D support and preferential tax subsidies to Boeing.

People familiar with the matter said that in a potential key breakthrough, the United States played down its opposition to Airbus’s future public lending principles, but insisted that they must be clearly market-based and notified in advance.

But they added that there are still obstacles to the extent to which this can effectively allow Washington to approve or block European projects. The EU strongly opposes any veto by the United States.

More important is the benchmark used when deciding whether the interest on any future loan is compatible with the market.

According to the 1992 subsidy agreement, one-third of a project can be funded by direct government support, such as loans and indirect R&D support for liquidation, up to 4% of the company’s revenue.

One option is to re-examine the framework and replace subsidy quotas and new caps on indirect R&D support with market rules.

None of the parties agreed to comment on the talks.

China’s “Radar”

Former U.S. Trade Representative Robert Lighthizer once suggested that the U.S. and the European Union join forces to fight China’s aircraft subsidies [File: Elijah Nouvelage/Bloomberg]

In December 2020, Robert Lighthizer, the outgoing U.S. trade representative, told Reuters that the United States and Europe should cooperate to oppose China’s future use of aerospace subsidies.

Two people familiar with the matter said that the United States has conducted a joint review of aerospace funding from non-market economies such as China.

“There is no doubt that the rise of China’s aircraft industry is… as we all know, it is well known,” Marjorie Jolins, senior vice president of the U.S. Chamber of Commerce, said on Monday, noting what she referred to as China’s “substantial subsidies.”

Like the United States, the European Union has disputes with Beijing on trade and security issues this year. But its 27 countries may find it difficult to reach consensus on topics such as aerospace.

For example, in April, Hungary prevented the European Union from making a statement criticizing China’s new Hong Kong security law, sparking a debate about the right of member states to veto the EU’s foreign policy.

The Chinese Embassy in Washington did not immediately comment.

Complications of Brexit

Brexit also complicates negotiations.

In December of last year, the United Kingdom and the United States nearly reached an aerospace agreement, which may force Brussels to take part in its own negotiations with Washington.

But several sources said it collapsed due to British employment concerns, and was eventually replaced by political interference surrounding the unrest in Washington in January. A British official said that a balanced agreement could not be reached at that time.

Britain’s ability to negotiate trade agreements independently of the European Union is at the core of its new “Global Britain” position. But its flexibility at Airbus is limited by its role as one of the four core countries in which the aircraft manufacturer participates, predating its accession to the European Union.

Airbus, which has 14,000 employees in the UK, made it clear that if the UK abandons the aerospace industry, jobs may be transferred abroad.