Airbus/Boeing deal explained: what it contains and what will happen next

The end of the endless battle between the European Union and the United States over aircraft subsidies and the fight over the sea bass and lamb stew in Brussels marked a seemingly major truce. Thorny trade conflict.

For policymakers in Brussels, it is hoped that the Airbus-Boeing deal can decisively reverse the Trump-era trade tensions. For businesses on both sides of the Atlantic, it has lifted the ghost of punitive tariffs on goods ranging from aviation to Georgia’s sugar cane molasses and Italian cheese.

but transactionThe finalization at the EU-US summit on Tuesday also marks the beginning of a long-term process that requires close cooperation if the two sides are to stay away from each other and focus on the mutual trade challenges posed by China.

What is the content of the dispute?

It can be traced back to 2004, when Airbus delivered more aircraft than its American competitors for the first time. The previous understanding of subsidies collapsed, and the US government accused the state aid of unfairness. The EU refuted its complaints. The World Trade Organization launched an investigation into both sides.

The main criticism of the United States focused on the so-called launch assistance provided to Airbus by its EU host countries (then Britain, France, Germany, and Spain). This assistance is equivalent to funds provided by the government for the development of new models and is compensated by royalties for future sales.

The EU countered that Boeing benefited from U.S. support for violating WTO rules—especially tax relief in Washington state where the company is located. Tit-for-tat disputes ensued, as each party accused the other party of (successfully) not complying with WTO rulings.

In 2019, the WTO granted the United States the right to impose US$7.5 billion in retaliatory tariffs on European products. The American hot list ranges from French wines to German machine tools.

The following year, the EU was authorized to tariff U.S. goods worth nearly 4 billion U.S. dollars. Its equally eclectic hot list ranges from spirits to ornamental fish.

With the coming of the Biden administration, ending the dispute has become a serious possibility – and more and more people realize that this will harm the companies of both parties and at the same time contribute to China’s ambitions in the commercial civil aviation market.

In March, both parties agreed Suspend their retaliatory tariffs Four months have created a window for negotiations.

What’s in the transaction?

The key element is the suspension of punitive tariffs for five years and the establishment of a working group responsible for reaching a final consensus on past and future subsidies.

Boeing welcomed the deal, stating that it “committed the European Union to resolve the launch assistance issue and establish the necessary rules to ensure that the European Union and the United States fulfill this commitment without the need for further WTO action.”

A line chart of stock price readjustment shows the performance of Boeing and Airbus stocks

Nevertheless, in order to establish some rules for this path, the WTO benchmarks on R&D funding, tax breaks and other types of subsidies will be used. The agreement also requires regular ministerial contacts—mainly between EU Trade Commissioner Valdis Dombrovskis and U.S. Trade Representative Katherine Tai—to review progress.

What is important is that both parties agree to cooperate in handling “non-market economy” entrants entering the civil aviation market. In a statement, US President Joe Biden clearly linked it to the counter-attack that “China’s non-market behavior in this field gives Chinese companies an unfair advantage.”

What is the impact on the aviation industry?

Welcome relief.The industry has been in Hardest hit by Covid-19, And the prospect of a trade war will be an additional costly disturbance. Due to cash-strapped airlines canceling or postponing orders, aircraft deliveries are still far below pre-pandemic levels.

Officials from Airbus and Boeing also recently expressed their desire to reach a settlement. In addition to the coronavirus, their long-standing duopoly is also facing increasingly fierce Chinese competition. State-owned aviation manufacturer COMAC is developing the C919, which aims to compete with Airbus A320 and Boeing 737.

Boeing forecast Last year, China will become the world’s largest aviation market. In the past ten years, about 25% of the world’s aviation growth has come from this Asian country.

“I am confident that we have resolved these disputes,” Dai said on Tuesday. “We are putting away litigation briefcases.”

Where will the agreement lead to trade between the EU and the United States?

It puts an end to a long-standing source of disharmony. Now Brussels is pushing for another development: the Trump-era steel and aluminum tariffs.

These damage the interests of EU producers and lead the EU to another wave of retaliation against American consumer products such as Harley-Davidson and bourbon. Biden and EU leaders agreed on Tuesday to set up a working group on this issue.

A bar graph of the trade balance between the EU and the US, showing the EU's surplus by industry by product group (billion euros)

For the EU, this is a particularly fierce quarrel, because the Trump administration has listed the EU as a national security threat along with Canada and other traditional US allies to justify this move. However, although Canada was subsequently approved by Trump as part of the updated trade agreement to suspend implementation, the EU has not been relieved.

EU officials said that the EU is currently adopting a dual-track approach to end disputes while advancing a positive agenda. To this end, Biden and EU leaders also agreed to establish a “Trade and Technology Committee” to cooperate in the development of rules and technical standards for emerging industries such as artificial intelligence and sensitive technologies such as semiconductors.

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