You are here
Home > Aviation > Boeing’s biggest trade fight could spark a U.S. confrontation with Europe

Boeing’s biggest trade fight could spark a U.S. confrontation with Europe

 


Despite its loss in U.S. trade court against Bombardier, Boeing believes 2018 will be a turning point in its lengthy WTO challenge to Airbus over government subsidies. The threat of hefty tariffs could redraw the playing field — or trigger a trade war among traditional allies.


Boeing’s lawyers, still smarting from the shock of losing their U.S. trade-court case against Bombardier’s C-Series jets, are now awaiting an imminent ruling in a bigger trade fight over government subsidies.

In a case against Airbus that’s slogged on for nearly 15 years and has seemed endless, Boeing now insists it’s within sight of a final victory.

And though the dispute long predates President Donald Trump, his administration’s hard-nosed “America First” posture on trade disputes — ready to impose tariffs rather than negotiating settlements — adds a new edge of rancour and risk.

The U.S. filed suit against Airbus at the World Trade Organization (WTO) in 2004, and since then the gears of that court have ground slowly without any perceivable impact.

Yet Boeing’s top lawyer, Michael Luttig, said in an interview that the law is about to catch up with Airbus and the European Union (EU).

“Boeing committed itself some 15 years ago … and it has never blinked since,” said Luttig. “Today, we are months away from the imposition of tariffs.”

Airbus is staring back, also refusing to blink.

Airbus and Bombardier are both the targets of Boeing cases claiming that improper government subsidies have bankrolled their planes. (P. Pigeyre / Master Films)
Airbus and Bombardier are both the targets of Boeing cases claiming that improper government subsidies have bankrolled their planes. (P. Pigeyre / Master Films)

A senior Airbus executive and trade lawyer, who asked not to be named because of the continuing legal proceedings, compared Luttig’s threat of tariffs to “a nuclear strike” and pointed to the parallel EU case before the WTO that accuses Boeing of taking subsidies.

“The EU would be well-prepared to respond in kind and with much greater force,” said the Airbus legal executive. “The EU will survive that first nuclear strike and will retaliate with megatons to the U.S.’s kilotons.”

In a speech in London last month, Airbus CEO Tom Enders said that under Trump, the U.S. is “no longer fighting for opening markets but to close the U.S. market to … foreign competitors.”

Citing the CSeries case, he accused Boeing of “ruthlessly surfing on this ‘America-First’ wave.”

The risk that a multinational trade war could erupt with some of the nation’s closest allies looks suddenly higher.

A WTO endgame

In September 2016, after multiple procedural steps and appeals, the last ruling in the United States’ WTO case against Airbus found that the European jet maker had fallen far short of remedying the harm to Boeing from illegal subsidies.

 Airbus Group CEO Tom Enders. (Kerstin Joensson / The Associated Press, file)
Airbus Group CEO Tom Enders. (Kerstin Joensson / The Associated Press, file)
 

The EU immediately appealed. What’s ahead this year, by late spring, is the final decision on that appeal.

Boeing’s lawyers expect the court to largely uphold the 2016 decision. And Boeing says, that’s it. It’s the end of the appeals.

If Airbus loses, said Bob Novick, Boeing’s outside counsel on the WTO dispute since 2003 and former general counsel to the U.S. Trade Representative, the U.S. would then immediately request authorization to impose retaliatory sanctions.

Boeing anticipates that the WTO will set the level of sanctions at $10 billion to $15 billion.

The U.S. government could then slap punitive tariffs up to that amount on whatever EU goods it selects for maximum political impact.

Boeing’s tough talk may be partly a negotiating ploy. Still, if the WTO hands this loaded weapon to the U.S. government, it’s unlikely the Trump administration’s trade hawks will be shy about using it.

Jeff Bialos, a partner in the international law firm Eversheds Sutherland and a former Commerce Department official handling major trade litigation, said that typically at such an endpoint in a trade dispute, the two governments would negotiate some agreed settlement.

“The issue is, will the Trump administration, with its views on trade … have the ability to negotiate solutions?” Bialos said. “The jury is out. We are going into uncharted waters.”

Bill Perry, a Seattle-based international trade lawyer with Harris Bricken and a former U.S. Commerce Department attorney, thinks Trump will take “a very hard line.”

He pointed to the administration’s imposition last month of tariffs on imported solar panels, to punish China for selling finished panels in the U.S. below their cost, and on washing machines, targeting Korean manufacturers.

“Could this be the first row of bricks in a protectionist wall Trump intends to put up?” Perry asked.

At the very least, the stage looks set for brinkmanship, if not an open trade war.

A duel with pistols drawn

Boeing lawyers expect the imminent threat of tariffs to focus minds in the EU and perhaps to precipitate settlement talks in which they would then have the upper hand.

The top Airbus executive warned that Boeing is on the hook for its own illegal subsidies in the parallel WTO case filed by the EU — and so whatever the U.S. does, the EU can and will match.

“Boeing can try for sanctions. And if they do, we will too,” he said.

In the EU case against Boeing, the last ruling in June found that Boeing had failed to remedy the harm to Airbus from just one set of subsidies: the tax reduction that was part of Washington state’s aerospace incentives.

Boeing has appealed that ruling.

An awkward detail for the EU is that its case against Boeing was filed as a countersuit some nine months after the U.S. filed against Airbus, and so it lags the U.S. case by roughly that amount of time.

The decision on Boeing’s appeal won’t come out until late this year or even next year. In the meantime, the U.S. may act.

The Airbus executive dismissed the delay between the cases — “a few months”— as insignificant.

He compared it to a pistol duel, where one person gets to fire first, but knows that the other will survive and will get a chance to fire back.

The EU will have plenty of ammunition, he contended. When the time comes to add up the compensation needed, he said the EU will count every airplane Boeing sells, including future sales.

“Every sale of a 787 is a subsidized sale and everyone will count against Boeing when judgment day comes,” the Airbus executive said.

Trade war consequences

If Boeing’s 15-year pursuit of Airbus at the WTO has been tenacious, the legal attack it launched on Bombardier last April was even more fiercely aggressive. And even though it failed, pushing the case had consequences for Boeing.

Geoffrey Gertz, a researcher on the politics of trade at the Washington, D.C.-based Brookings Institution, pointed out that in the Delta jet sale won by Bombardier’s CSeries that was central to the case, “there wasn’t much at stake” for Boeing because it wasn’t offering its own jets against the smaller aircraft.

Yet pursuing the case alienated both the Canadian and British governments, putting at risk large defence contracts, including a contract to supply Canada with F/A-18 jet fighters valued at more than $5 billion.

It also antagonized major commercial-airplane customer Delta.

In a subsequent sales campaign in December that mattered much more to Boeing, Delta chose to go with Airbus when it bought 100 larger planes.

“Boeing might be rethinking whether that was a miscalculation,” Gertz said.

An open trade war with major economic partners could be even more damaging, not only for Boeing but for the U.S.

That’s a belief central totraditional, pre-Trump Republican Party policy.

President Ronald Reagan in 1986 dismissed congressional demands for import tariffs as “flimflammery” and warned against the dangers of protectionism.

“The truth is these trade restrictions badly hurt economic growth,” Reagan said.

The U.S. imposed tariffs on imported solar panels to punish China for selling panels in the U.S. below cost. (Mark Lennihan/AP)
The U.S. imposed tariffs on imported solar panels to punish China for selling panels in the U.S. below cost. (Mark Lennihan/AP)
 

 The unpredictable consequences of tariffs are evident in the case of REC Silicon, which produces polysilicon, a raw material used in making solar panels, at a $1.7 billion manufacturing plant in Moses Lake.The Chinese solar-panel industry once imported polysilicon largely from the U.S.

But after an earlier round of the solar-panel trade fight, China in 2014 retaliated by imposing tariffs on U.S. polysilicon that forced REC to cut 500 jobs.

A letter sent to Trump by REC employees in early January said that “now the remaining jobs are at risk” and urged Trump to announce “a comprehensive settlement” with China.

Instead, Trump applied new tariffs.

The risk is a tit-for-tat response.

Last month, in retaliation for the Commerce Department’s initiation in December of a trade case against imports of aluminium sheet from China, the Chinese government started its own case against U.S. exports of sorghum grain to China.

“It signals the possible start of a trade war with China,” said trade lawyer Perry in a newsletter to clients this month. “There is a price to pay for U.S. tariffs and trade actions.”

Fight or settle?

Similar Articles

Leave a Reply

Top