Today the U.S. and EU announced a 5 year suspension of the tariffs that were in place after the WTO dispute settlement rulings in the Airbus-Boeing subsidy dispute. Lifting the tariffs is good news (although the U.S. made it clear that if the EU violates any "red lines" in terms of the provision of subsidies, the tariffs can be reimposed), but it's hard to get a sense of the details of the agreement. The EU press release explains that:
Under the Understanding on a cooperative framework for Large Civil Aircraft, the two sides expressed their intention to:
- establish a Working Group on Large Civil Aircraft led by each side's respective Minister responsible for Trade,
- provide financing to large civil aircraft producers on market terms,
- provide R&D funding through an open and transparent process and make the results of fully government funded R&D widely available, to the extent permitted by law,
- not to provide R&D funding as well as specific support (such as specific tax breaks) to their own producers that would harm the other side,
- collaborate on addressing non-market practices of third parties that may harm their respective large civil aircraft industries,
- continue to suspend application of their countermeasures, for a period of 5 years, avoiding billions of euros in duties for importers on both sides of the Atlantic.
And the White House fact sheet says the following:
Both sides agreed to the following general principles to guide their future cooperation:
Suspend the tariffs related to this dispute for five years. This signals a mutual determination to embark on a fresh start in the relationship. The agreement also retains flexibility for the United States to reapply tariffs if we’re no longer competing on a level playing field.
Establish a Working Group to analyze and overcome any disagreements that may arise between the sides. The Working Group will collaborate on and continue discussing and developing these principles and appropriate actions. The Trade Ministers leading the Working Group will consult at least yearly. The Working Group will meet on request or at least every 6months.
Ensure that our workers and industries can compete on a level playing field. The U.S. and EU agreed to clear statements on acceptable support for large civil aircraft producers that affirm the outcomes of the disputes and the intention of the parties to ensure that our workers and industries can compete on a level playing field.
Confront the threat we face from China’s ambitions to build a sector upon non-market practices, including:
- Meaningful cooperation on countering (1) investments in the EU and the United States by non-market actors, which can lead to the appropriation of technology; and (2) outward investments into China that are influenced by non-market forces.
- Identifying where joint work is needed to take parallel action against non-market practices.
- Sharing information regarding these and other areas to forge a common approach in the large civil aircraft sector.
What I'm still not sure of is whether, practically speaking, the US/EU:
1) have agreed to make changes to their subsidy programs;
2) have agreed not to worry about each other's subsidy programs; or
3) just agreed to keep negotiating.
Here is a question by Jim Brunsden of the Financial Times at a joint press conference, which tries to get some answers:
on the agreement that's been reached on Airbus Boeing, to follow up really on the previous question, how confident are you both that this is really the end in terms of the disputes, given that there's still obviously work to do. And how do you plan to navigate the fact that the US and EU approaches to subsidizing commercial aircraft are so different, with launch aid in the European Union being a bone of contention for a very long time, and with, for example, Defense Department funding and other forms of R&D funding in the US. How do you plan to navigate that? Thank you very much.
European Commission Executive Vice-President Valdis Dombrovskis and U.S. Trade Rep Katherine Tai responded as follows:
Dombrovskis
on the first question, I think today, one can say we are grounding this Airbus Boeing dispute. And I think it's a major step towards really putting this dispute completely to the end. So we agree, a cooperative framework, and within five years of this cooperation, I think we'll be definitely able to put this, these principles to the rest. In a sense, what took so long, exactly, one of the difficulties is that we have very different approaches, how our large civil aircraft manufacturers are functioning, what kind of support is being provided. So, therefore, we were able to agree on a general principles on how this support is going to be provided, not on every possible detail, but then we are establishing Working Group which will continue to work on all sorts of topics, and make sure that what we do, we do in a cooperative spirit.
Tai
Well I'd like to say a couple of words here too. Again, I cannot underscore enough how this process has built my trust, and also my hope, in the partnership with EVP Dombrovskis, his team, and the European Union. In terms of my confidence level, it is very high, as of today. And again, I think I want to address the question of what does this agreement mean. And I noticed a theme in the questions as you're all grappling with it, which is ... my confidence level is high that we have resolved these disputes, because we are putting away our litigation briefcases and we have committed to each other, to sit down at the table, and to discuss pragmatically what is going to be best for competition between us, in the context of a world where our industries, and workers, will be facing competition like we've never seen before. So, again, my confidence level is high with respect to this industry, this dispute, but also the larger issue of US/EU collaboration and what democracies can accomplish when we work together in a spirit of pragmatism and effectiveness.
And here's a question from a separate press briefing by Tai:
Q Good morning. Yes, can you say — will Airbus have to repay the subsidies? Will Airbus have to pay back those subsidies? ...
AMBASSADOR TAI: ... Now there are a number of subsidies, but, again, I’ll interpret your question related to ones that are outstanding. And the answer there is that the agreement provides for continued discussion between the parties on outstanding and current subsidies to Airbus for the existing aircraft, which remain a concern for the United States.
We’ll continue to confer to address these outstanding support measures.
Based on this, I'm not totally sure what has been agreed to, and to what extent any differences of view here have been resolved. It is certainly clear that the U.S. and EU are going to cooperate with each other in relation to addressing China's subsidies in this sector, but what exactly they agreed to with regard to each other's subsidies is difficult to understand at this point. Ending the litigation is good in a number of respects, but if it just takes us back to the original pre-2004 negotiating positions, I'm not sure how much has been gained. On the other hand, now the negotiations will be taking place when there is greater concern about Chinese competition in this sector (and other sectors), so perhaps that will light a fire under the negotiators and both sides will be more willing to make concessions.
ADDED: The full text of the Understanding is here. To illustrate my points above, take a look at this sentence:
Each side intends to provide any financing to its LCA producer for the production or development of large civil aircraft on market terms.
I can imagine there will be some disagreement on the scope of this sentence, and I'm not sure what the parties' expectations are here.