On October 18, 2019, the United States government imposed tariffs of 10 to 25% on imports of European large civil aircraft (LCA), wine, cheese, and other products valued at roughly US$7.5 billion annually.
The U.S. issued the tariffs after the World Trade Organization (WTO) ruled that the European Union (EU) and the EU Member States France, Germany, Spain, and the United Kingdom (UK) provided subsidies to exports of Airbus civil aircraft in contravention of the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). On October 14, the WTO authorized the U.S. to impose countermeasures against the EU. U.S. tariffs followed four days later.
Background to the Tariffs: the WTO Airbus LCA Rulings
The Airbus dispute dates to October 2004. At that time, the U.S. requested consultations with France, Germany, Spain, and the UK concerning measures that the U.S. believed were inconsistent with GATT 1994 and SCM obligations. These measures included providing financing for design and development to Airbus, providing grants to develop, expand, and upgrade Airbus manufacturing sites, providing loans on preferential terms, and forgiving debt resulting from LCA production and development financing. The U.S. argued that the measures had caused “adverse effects” to the U.S. (particularly to the U.S. airplane manufacturer Boeing) over a 40-year period.
The WTO Dispute Settlement Board (DSB) established a panel to hear the dispute in July 2005. The panel issued its report in June 2010. Among its findings, the panel determined that the subsidies had: 1) displaced imports of U.S. LCA into the European market; 2) displaced exports of U.S. LCA into third-country markets including Australia, China, and South Korea; 3) likely displaced U.S. LCA exports to India; and 4) resulted in significant lost sales for the U.S. in selected markets. The panel recommended that the EU states withdraw the subsidies without delay. The EU appealed in July 2010. The WTO Appellate Body upheld many of the panel’s findings.
Discussions of EU compliance with the DSB rulings and U.S. countermeasures against the EU began in 2011. In December of that year, the EU reported to the DSB that it had brought its measures into conformity with the rulings and WTO obligations. The U.S. disagreed, however, and requested the establishment of a panel to evaluate EU compliance. The U.S. also requested DSB authorization to take countermeasures against the EU and the specified Member States.
The compliance panel issued its report in September 2016. It found that the EU and the specified Member States failed to comply with the DSB recommendations and rulings and bring their measures into conformity with SCM Agreement obligations. The EU appealed in October 2016. In May 2018, the Compliance Appellate Body upheld the conclusions that the EU and certain Member States had failed to remove adverse effects for the U.S. and withdraw subsidies in the twin-aisle LCA and very large aircraft (VLA) markets.
The WTO authorized U.S. countermeasures in October 2019. On October 2, a DSB Arbitrator determined that the U.S. could request authorization of countermeasures against the EU “commensurate with the degree and nature of the adverse effects determined to exist” in the period of December 2011 to 2013. This totaled approximately US$7.5 billion annually. The countermeasures could take the form of suspension of tariff concessions and related obligations under the GATT 1994 or suspension of commitments and obligations with regard to services, except financial services. On October 14, the DSB authorized the U.S. to suspend concessions (i.e., impose tariffs) on EU imports valued at up to US$7.5 billion annually. The DSB did not identify an end date for the countermeasures.
EU Products Subject to Countermeasure Tariffs
At 12:01 a.m. on October 18, the U.S. imposed 10% additional import duties on LCA and 25% additional import duties on selected agricultural and other products entered for consumption or withdrawn from warehouse for consumption. The U.S. applied the duties under Sections 301, 304, and 306 of the U.S. Trade Act of 1974. According to the Office of the U.S. Trade Representative (USTR), the U.S. can increase the tariffs or change the affected products at any time. Furthermore, because the WTO authorized the tariffs, other states cannot legally respond with retaliatory tariffs on U.S. products.
The specific products are listed in Annexes A and B of the USTR “Notice of Determination and Action Pursuant to Section 301: Enforcement of U.S. WTO Rights in Large Civil Aircraft Dispute” published in the Federal Register, Vol. 84, No. 196 on October 9, 2019. Many of the new tariffs apply to agricultural commodities, particularly various types of fruits, cheeses, and other dairy products. While some of the tariffs apply to products from all EU Member States, others apply only to products from specific countries.
New airplanes and other new aircraft (other than military airplanes or other military aircraft) of an unladen weight exceeding 30,000 kg from France, Germany, Spain, or the UK classified as 8802.40.00 in the Harmonized Tariff Schedule of the United States (HTSUS) are subject to an additional import duty of 10% ad valorem.
Certain agricultural products from any EU Member State are subject to an additional import duty of 25% ad valorem. These include:
- Dairy products such as yogurt in dry form, fermented milk, and curdled milk found in 0403.10.50, 0403.90.85, 0403.90.90, and 0405.20.20;
- Cheddar, Italian-style, Swiss, Romano, American, Colby, Provolone, and other cheeses found in 0406.10.28, 0406.10.54, 0406.10.58, 0406.10.68, 0406.20.51, 0406.20.53, 0406.20.69, 0406.20.91, 0406.30.28, 0406.30.38, 0406.30.69, 0406.90.43, 0406.30.90.54, 0406.90.92, and other HSTUS entries;
- Oranges, mandarins, clementines, lemons, cherries, and other fruits found in 0805.10.00, 0805.21.00, 0805.22.00, 0805.50.20, 0812.10.00, and 0813.40.30;
- Prepared or preserved pork offal found in 1602.49.10; and
- Mussels, clams, and molluscs found in 1605.53.05, 1605.56.05, 1605.56.10, 1605.56.15, 1605.56.20, 1605.56.30, 1605.56.60, 1605.59.05, and 1605.59.60.
Specific agricultural products of France, Germany, and the UK are subject to the 25% additional import duty, including:
- Frozen pork found in 0203.29.40;
- Whey protein concentrates found in 0404.10.05;
- Fresh cheeses, Edam, Gouda, and sheep’s milk cheese found in 0406.10.84, 0406.10.88, 0406.10.95, 0406.90.14, 0406.90.16, and 0406.90.56; and
- Olive oil and olives found in 1509.10.20, 1509.90.20, 2005.70.12, and 2005.70.25.
Some other agricultural products of EU Member States, excluding France and Poland, are subject to an additional import duty of 25% ad valorem. These include:
- Dairy products such as yogurt (not in dry form), butter, and certain cheeses found in 0403.10.90, 0405.10.10, 0405.10.20, 0406.30.89, and 0406.90.99;
- Frozen fruit, prepared or preserved cherries, prepared or preserved peaches, and mixtures of fruit, not elsewhere specified, found in 0811.90.80, 2008.60.00, 2008.70.20, and 2008.97.90; and
- Cherry juice and vegetable juice (other than tomato) found in 2009.89.65 and 2009.89.80.
Other agricultural products of EU Member States, excluding Poland, are subject to the additional 25% duty, including: dairy products such as butter substitute spreads, other dairy spread, processed cheese, and cheeses with or from cheddar cheese found in 0405.20.30, 0405.20.80, 0406.30.85, and 0406.90.78; and various pork products found in 1602.41.90, 1602.42.20, 1602.42.40, 1602.49.40, and 1602.49.90.
Furthermore, the 25% additional import duty applies to the following agricultural products of EU Member States, with the exception of France:
- Fats and oils derived from milk, other than butter or dairy spread, found in 0405.90.10;
- Cheeses, including Gruyere, blue-veined cheese, cheddar, Romano, Reggiano, Parmesan, and Provolone, found in 0406.30.51, 0406.30.53, 0406.40.54, 0406.90.08, 0406.90.12, 0406.90.41, 0406.90.42, 0406.90.48, 0406.90.90, and 0406.90.97;
- Prepared or preserved mussels found in 1605.53.60; and
- Currant and berry fruit jellies in 2007.99.70, prepared or preserved pears in 2008.40.00, and pear and prune juice found respectively in 2009.89.20 and 2009.89.40.
Swiss or Emmentaler cheese with eye formation (not elsewhere specified), found in 0406.90.46 and from any of the EU Member States, with the exception of Finland, France, and Poland, are subject to the additional import duty of 25% ad valorem.
Pecorino cheese from sheep’s milk, in original loaves and not suitable for grating, found in 0406.90.57 and from any of the EU Member States, except Bulgaria and France, are subject to the 25% additional import duty.
Cheeses and substitutes for cheese (including mixtures and not elsewhere specified), with cow’s milk and butterfat, as found in 0406.90.95 and from any of the EU Member States, with the exception of France, Lithuania, and Poland, are subject to an additional import duty of 25% ad valorem.
Olives found in 0711.20.18, 0711.20.28, 0711.20.38, 0711.20.40, 2005.70.08, 2005.70.16, and 2005.70.23 as well as wine (other than Tokay) found in 2204.21.50 from France, Germany, Spain, or the UK are subject to additional import duties of 25% ad valorem.
The following products from Germany are subject to additional import duties of 25% ad valorem:
- Coffee found in 1901.21.00, 1901.22.00, and 2101.11.21;
- Tools such as base metal tweezers, pliers, metal cutting shears, pipe cutters, hand tools, screwdrivers, and knives without fixed blades, found in 8201.40.60, 8203.20.20, 8203.20.60, 8203.30.00, 8203.40.60, 8205.40.00, 8211.93.00, 8211.94.50, 8467.19.10, 8467.19.50, 8468.80.10, and 8468.90.10;
- Industrial or laboratory microwave ovens for making hot drinks or cooking or heating food, found in 8514.20.40; and
- Objective lenses and related parts and accessories for cameras, projectors, or photographic enlargers or reducers, found in 9002.11.90.
Pork (other than ham and shoulder) and cuts, not containing cereals or vegetables, boned and cooked and packed in airtight containers, found in 1602.49.20 and from all EU Member States except Denmark, France, and Poland, are subject to additional import duties of 25% ad valorem.
The following products from Germany and the UK are subject to the 25% additional import duties:
- Sweet biscuits, waffles, and wafers found in 1905.31.00 and 1905.32.00;
- Printed books, brochures, similar printed matter, transfers, lithographs, pictures, and photographs found in 4901.10.00, 4908.10.00, 4911.91.20, 4911.91.30, and 4911.91.40; and
- Equipment such as self-propelled backhoes, shovels, clamshells, draglines, other self-propelled machinery, and electromechanical hand tools found in 8429.52.10, 8429.52.50, and 8467.29.00.
Liqueurs and cordials found in 2208.70.00 from Germany, Ireland, Italy, Spain, and the UK are subject to additional import duties of 25% ad valorem.
Finally, the following products from the UK are subject to additional import duties of 25% ad valorem:
- Single-malt Irish and Scotch Whiskies found in 2208.30.30;
- Clothing including sweaters, outerwear, men’s or boys’ suits, women’s or girls’ nightdresses or pajamas, and women’s or girls’ swimwear, found in 6110.11.00, 6110.12.10, 6110.20.20, 6110.30.30, 6202.99.15, 6202.99.80, 6203.11.60, 6203.11.90, 6203.19.90, 6208.21.00, 6211.12.40, and 6211.12.80; and
- Blankets and bed linen found in 6301.30.00, 6301.90.00, 6302.21.50, and 6302.21.90.
Future Developments and Related Issues
The tariffs presumably will remain in place until the WTO finds that the EU is in full compliance with DSB recommendations and rulings and it withdraws its authorization of U.S. countermeasures or the EU and the U.S. negotiate an agreement to lift the tariffs. The EU has stated that it is now fully compliant with the WTO recommendations and rulings, and it is awaiting a WTO compliance panel finding.
The U.S.-EU tariff situation may worsen in the next year, as the WTO is expected to issue a ruling in response to a competing claim from the EU that the U.S. federal and state governments provided illegal subsidies to Boeing. The WTO may authorize EU countermeasures against U.S. products, and there is speculation that they could exceed the amount authorized in the Airbus ruling.
The developments in the Airbus and Boeing cases occur at a time of increased trade tensions between the U.S. and the EU. The U.S. imposed tariffs on EU steel and aluminum imports in June 2018 on the basis of national security considerations. The EU retaliated with tariffs on imports of approximately US$3 billion of U.S. goods, including bourbon, motorcycles, orange juice, and cigarettes. As of November 2019, the U.S. is considering imposing tariffs on imports of automobiles and parts from the EU and other countries, but the U.S. may delay the decision.
SECURUS Strategic Trade Solutions continues to keep its clients and partners informed of developments in this dynamic trading environment.
November 17, 2019; by SECURUS Managing Director Richard Glen Young, Richard.Young@SECURUSTrade.com.