The trade war between these two major airline corporations has recently moved to the final stages after the two carriers worked out a deal to suspend tariffs. The deal will last five years, effectively ending the trade dispute between Boeing and Airbus. This cease-fire was introduced as both businesses attempted to recover lost profits that stemmed from the coronavirus pandemic. The negotiations were initiated by the EU administration, which sought to lobby the White House into ending unproductive trade tariffs imposed by the Trump administration.
After lengthy negotiations, both administrations announced they had resolved a 17-year-long fight over aircraft subsidies. The meeting took place at the U.S.-EU summit in Brussels, and it marked the move from litigation to cooperation on aircraft disputes.
Terms of Deal
The key characteristics of this agreement involve both corporations and countries providing research and development funding. It offers significant tax breaks to airlines operating similar routes regardless of the location of their headquarters.
The deal outlines terms for collaboration in addressing nonmarket practices. These agreements help to ensure that other countries, including China, are bound by some form of alliance that prevents malpractice. Tariffs on EU products have been suspended to encourage the federal government to support Airbus as agreed.
The agreement is binding, and any failure to meet the agreed terms will result in the United States retaining and reactivating the suspended tariffs. The measures will help prevent a lose-lose situation because of the highly competitive nature of the airline industry.
WTO rulings
The EU-U.S. relationship has faced significant strain due to sour relations with the Trump administration. This governing era introduced duties worth $7.5 billion on European products. The policy was retaliated when the World Trade Organization’s hearing found the EU had given unfair subsidies to Airbus. The EU imposed tariffs worth $4 billion on U.S. products to counter this policy. This happened after the WTO ruled the U.S. was providing illegal aid to Boeing.
The end of this trade war has resulted in financial relief for both corporations. On Tuesday, Boeing shares gained 0.6%, while the Paris-listed Airbus shares gained 0.4%.
The ripple effect of these positive measures has led the United Kingdom to seek a similar deal with the United States. The U.K. is now a former member of the EU; however, they were still affected by this dispute. The trade tensions led to declining profits for U.K.-based airlines even after their exit from the EU.
Steel and aluminum tariffs
The European Union has sought relief from the 25% tariff imposed by the Trump administration on European steel. This made imports expensive for American companies forcing them to buy from other countries or locally. The four-month probationary suspensions of tariffs have opened doors for ending the long-running trade war on all fronts.
EU companies lost a significant share of the U.S. market. A further 10% duty compounded this problem on European aluminum. The Trump administration argued that this clause was necessary to protect national security. This move led the EU to retaliate with the first round of tariffs worth $3.4 billion. The governing authority had decided on another round of tariff hikes estimated to be around $3.6 billion; however, these measures were put on hold to help facilitate fruitful negotiations.
Airbus vs. Boeing Trade War Timeline
2004:
The administration in Washington moves to terminate a 1992 U.S.-EU agreement. This agreement provided support for Airbus and Boeing (BA.N). Britain, France, Germany, and Spain face allegations of unfair subsidies via government loans to Boeing.
2005:
The WTO seeks to engage the public through probes. This move was necessary after bilateral negotiations failed to yield tangible results for the two regions.
2006:
Airbus introduced a new design A350 jetliner which received its funding through government loans from host nations. This action represented illegal aid to the airline corporation. The move raised competition unfairly between the two airline carriers.
2009:
The WTO rules that the EU provided aid to Airbus clearly violate the ban currently in place over export subsidies. This type of aid is considered harmful to the free economy and market exchange; therefore, it was automatically banned.
2010:
The WTO rules favor the EU and demand the U.S. immediately stop providing unfair aid to the Airbus A380 superjumbo. The support came from government loans and was considered unfair export subsidies. The court rejected U.S. requests to offer assistance for the newer A350 model.
2011:
The EU failed to win its appeal and is provided a deadline of December to comply. A separate WTO panel partially backs the EU as it argues the U.S. provided $19 billion in financial support to Boeing. The case document also claimed the money was given unfairly to NASA, various states, and municipalities. This led to the court ruling against the Boeing corporation’s aid of at least $5.3 billion.
2012:
WTO judges uphold the ruling against U.S. support for Boeing.
2013:
Boeing introduces plans to produce its latest design of airplane engines. The design of the twin-engined 777X was facilitated by a local legislature worth $8.7 billion in new aerospace tax subsidies.
2014:
The EU launches a separate complaint against the 777X tax breaks. These tax breaks were considered “prohibited” subsidies.
2016:
WTO rules that the EU failed to comply with its Airbus rulings. The court moves to target aid for the new A350.
2017:
WTO appeal judges reverse ruling on 777X. The WTO absolves the U.S. of the charges of maintaining unfair support for Boeing.
2018:
WTO rules that the EU has failed to halt all subsidies to Airbus. The U.S. administration declares its intentions to impose significant sanctions on European products.
