Tariff suspensions and the four-month window to solve Boeing-Airbus
In joint statements issued on March 4 and 5, the U.S., first with the United Kingdom and then with the European Union (EU), agreed to suspend all retaliatory tariffs for four months in the Boeing-Airbus dispute. Is a solution within reach?
The U.S.-EU joint statement explains the tariff suspensions thusly: “These steps signal the determination of both sides to embark on a fresh start in the relationship.” Let’s see.
The retaliatory strikes over Boeing-Airbus were provocative from the start. After nearly two decades of litigation at the World Trade Organization (WTO), the protagonists were quick to signal their anger and frustration by drawing up “hit lists” of comical proportions. The U.S.’s list came in at $25 billion, of which the WTO approved $7.5 billion; the EU’s list clocked in at a mere $20 billion, of which the WTO authorized $3.99 billion.
The line-items on both “hit lists” were no less provocative. For example, the U.S. lashed out at scotch whisky, the EU at cheddar cheese and lobsters. Scotch was an easy target, but it was especially salient on the eve of Brexit. Cheddar, which the EU hardly imports from the U.S., was meant as a signal of Brussels’s big plans for geographical indications, an issue that seriously rubs Washington the wrong way. Finally, the EU included several tariff lines on frozen and live lobsters, giving Canada a big price advantage on what its fishermen catch in the same waters, especially given that the EU and Canada recently concluded a free trade agreement.
So why suspend tariffs now? The U.S.-EU document notes one obvious reason: to “ease the burden on their industries and workers….” The Scotch Whisky Association, for example, is quick to note that the Boeing-Airbus retaliation has cost its membership dearly. This, and the fact that the UK unilaterally stopped retaliating on Jan. 1, surely contributed to the good will.
But the point to WTO-authorized retaliation is to inflict pain on industries flush with a lot of political clout, in order to get them to lobby their government to come into compliance with a ruling. So again, why now?
Several reasons. There’s a new administration in the White House, and President Biden says he wants to work with allies in dealing with China. If Biden is to “reset” trade, the starting point has to be Europe. The EU wants WTO reform, has been seriously rattled by U.S. unilateralism in recent years and would like the Geneva-based institution to anchor its ever-growing list of preferential trade agreements. The wrinkle in this story, of course, is Boeing-Airbus.
How do you politically walk this dispute back? China. The U.S.-EU joint statement says as much, insisting that it’s time to unite against “the trade distortive practices of and challenges posed by new entrants to the sector from non-market economies, such as China.” This is Orwellian to be sure, but it just might work. It should have worked when Bombardier and Embraer began to eye the market for airplanes with more than 130 seats, or when Russia joined the WTO. Better late than never.
Okay, so there’s a cease fire. But can the peace be won? That depends on getting three things right.
First, the WTO worked. Not by granting retaliatory tariffs, mind you, but by making a lot of sense of direct and indirect subsidies. It isn’t true that nothing has been learned, and for the sake of messaging, it would be helpful if the parties acknowledged the point.
Second, take these lessons and re-write the 1992 Large Civil Aircraft (LCA) Agreement. It didn’t work the first time, but its heart was in the right place, and it can be revised in light of all the things learned. And make it multilateral on Day One, much as the 1992 text had called for.
Third, a re-write of the LCA Agreement needs to be informed by the business models of Boeing and Airbus. Subsidy definitions and programs will have to be tweaked. No agreement is going to eliminate all demands for, and the supply of, government assistance. This industry, as John Newhouse’s famous book reminds us, is “The Sporty Game,” one in which each airplane is a make-or-break bet for the company. The WTO has weighed in on direct and indirect subsidies. It’s time for Boeing and Airbus to take the lead in explaining what these rulings mean for their business models. What, commercially speaking, does it mean to win the peace?
Finally, what does the ceasefire mean for U.S.-UK-EU trade relations more generally? It means a momentary breather, but actions speak louder than words. Four months isn’t a lot of time. For both sides to revive their retaliatory tariffs again in four months would be a disaster, not just for those industries hurt as collateral damage, but for the rules-based global economy.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.