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On October 2, 2019, the World Trade Organization (WTO) issued an arbitration decision in European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/ARB. The decision authorizes the United States to impose $7.5 billion in tariffs on EU imports for EU subsidies to Airbus, making the ruling the largest in the WTO’s history and providing a partial conclusion to one of the longest running WTO disputes. The US Trade Representative (USTR) announced in a press release, which is available here, that the Trump Administration plans to impose tariffs beginning October 18. USTR stated that the bulk of these tariffs will be applied to imports from France, Germany, Spain, and the United Kingdom, and that the tariff increases will be limited to 10 percent on large civil aircraft and 25 percent on agricultural and other products. The European Union is awaiting a damage award in a WTO counter-complaint against the United States and Boeing where it has sought authorization to levy duties on $12 billion worth of US products.

Background of the Dispute

The Boeing/Airbus litigation dates back to 2004 when the United States initiated WTO proceedings arguing that EU subsidies to Airbus violated the WTO Agreement on Subsidies and Countervailing Measures and the 1994 General Agreement on Tariffs and Trade. Nine months later, the European Union initiated proceedings alleging that the United States was providing WTO-inconsistent subsidies to Boeing. In the years since, the WTO has ruled that the United States and European Union both provided infringing subsidies. The United States and European Union have each made changes to comply with these rulings, but the WTO has found continued infringements. A decision on the EU case regarding US subsidies is expected in the coming months.

Potential US Measures

The United States will receive authority to impose the retaliatory tariffs as early as this month, once the WTO’s Dispute Settlement Body formally accepts the arbitration award. In its press release, USTR announced that the United States has requested the WTO to schedule a meeting on October 14 to approve a US request for authorization to take the countermeasures against the European Union. Under Section 301 of the Trade Act of 1974, the USTR has the discretion to impose tariffs on EU products for violations of the WTO trade rules, or USTR could use the arbitration decision as a starting point for further negotiations with the European Union. USTR has published two lists of EU products that could be the target of the duties that cover more than $20 billion worth of EU exports, which are available here and here. The key EU exports that USTR will likely target include wine, cheeses, motorcycles, aircraft parts, and certain helicopters. Additional listed products include seafood products, produce, certain clothing and textile products, glassware, and certain metal products and metal alloys. USTR is not required to impose tariffs on the full amount authorized by the WTO, or to apply all the tariff increases at one time.

The UK Department for International Trade issued a press statement following the ruling stating that the United Kingdom and other EU Member States subject to the case had already complied with the WTO ruling and so did not see a basis for the United States to retaliate at this point. The United Kingdom also pointed out that in a corresponding procedure brought by the European Union against the United States, it was clear that the United States had taken no steps to comply, and so retaliation against the United States would be justified.

Implications for the WTO System and US-EU

This decision and the imminent decision in the EU case will bring to a head a long running dispute that has roiled transatlantic relations for decades. The United States and the European Union could eliminate the other’s threat of retaliation if it were to modify its legislation to comply with the WTO rulings. Short of that, the United States and the European Union will be able to impose retaliatory tariffs on imports from the other, or to negotiate a resolution between the parties.

President Trump, who calls himself “Tariff Man” and argues that foreigners pay tariffs imposed by the United States, may view this decision in the US case as providing leverage with the European Union. However, an authorization to retaliate in the EU case will likely tee up a stand-off. It may not matter much in practice if the United States’ retaliation authorization is substantially larger than the European Union’s, given the large amount of trade covered by the authorizations. Increased import tariffs would harm exporting businesses and their customers in both America and Europe, and escalating tensions could unsettle markets in a time of growing economic uncertainty. As a result, there may be increased interest in finding a negotiated path forward.

One clear winner is the WTO’s appellate body. The United States has criticized the appellate body and tied up nominations of new judges such that the appellate body will soon cease to have a quorum necessary to operate. In this case, the appellate body has, as designed, made the legal determinations necessary to ascertain WTO members’ rights. These determinations have cleared the way for the protagonists, the United States and European Union, to find a resolution.

 

Author

Rod Hunter is a partner based in the Washington, DC office of Baker McKenzie. He previously served as senior director for international economics at the National Security Council (NSC), the White House office that coordinates international trade policy and supervises national security reviews conducted by the Committee on Foreign Investment in the United States (CFIUS). In that role, he managed CFIUS cases, including negotiating resolution of the most sensitive cases, coordinating the administration’s legislative, communications, and diplomatic outreach in particular cases, and developing the government’s procedures for incorporating intelligence agencies’ assessments. He also served as senior counsel at the US Trade Representative’s office, where he litigated cases before the World Trade Organization. Prior to joining the Firm, Rod served as Senior Vice President, International Affairs, at the Pharmaceutical Research and Manufacturers of America (PhRMA), where he led the industry’s international policy agenda, and as Vice President, European Government Programs, at the IBM. Earlier, he practiced regulatory law in Brussels, Belgium for a decade, served as a judicial clerk to Judge Boyce F. Martin, US Sixth Circuit Court of Appeals, and served as an associate to Chief Justice Sir Anthony Mason, High Court of Australia.

Author

Kevin O'Brien is a partner in Washington, DC and former Chair of the North America Intellectual Property Practice Group. Mr. O'Brien has served as Co-Chair of the Patent Litigation Committee of the Federal Circuit Bar Association and has taught a course on Trade and Competition at Johns Hopkins University. He is currently Chair of the Trade Secrets Business Unit of the Global IPTech Group. He has more than 30 years of experience practicing in the areas of intellectual property and international trade law, with an emphasis on counseling and enforcement. Mr. O'Brien has been recognized as a leading lawyer by Chambers USA (District of Columbia) and has been selected as one of the "best lawyers" for IP law in Best Lawyers in America and in the Legal 500.

Author

Christine Streatfeild is a partner in the IPTech Practice Group. She has a broad range of trade, regulatory, and litigation experience, most frequently representing clients in antidumping and countervailing duty cases, safeguard measures, duties imposed for national security purposes (Section 232 duties), and Section 337 intellectual property and trade secrets disputes. She appears before the US International Trade Commission (ITC), US Department of Commerce (DOC), and the federal courts. She also routinely advises companies regulated by the Food and Drug Administration (FDA) on issues affecting mergers, acquisitions, licensing, and compliance. Prior to joining Baker McKenzie, Ms. Streatfeild served as the acting deputy director of the Generalized System of Preferences (GSP) and in the Environment and Natural Resources division of the Office of the United States Trade Representative. She has also served as an adjunct professor at the Krieger School, Johns Hopkins University, where she taught Global Trade, Policy and Competition.

Author

Ross Denton is a partner in Baker McKenzie’s European Community, Competition & Trade Department in London and member of the Baker McKenzie Japanese Practice Group. He also served as coordinator of the Firm’s International Trade & WTO Practice Group. Ross routinely advises US and Japanese multinationals on EU and UK competition matters and international trade law issues. In addition to his practice, Ross contributes to a number of publications, including Laws of the European Communities and Encyclopedia of Information Technology. He is a member of the UK Customs Practitioners Group and the World Trade Lawyers Association.