On Friday, February 14th, Valentine’s Day, the United States Trade Representative (USTR) quietly issued a notice in the Federal Register making adjustments to its WTO-authorized retaliation action, which was implemented on October 18, 2019. The United States increased the additional duty rate imposed on aircraft imported from the EU from 10% to 15%, effective March 18, 2020, and making certain other minor modifications.
The U.S. list continued to spare an Alabama Airbus plant that assembles single-aisle aircraft like the A320 by not hitting airplane parts. But the higher tariffs will hit wide body Airbus models not assembled in the U.S. and mean higher prices for those models for U.S. airlines that have orders on the books.
Here is how it started. About 15 years ago, the U.S. and EU started fighting at the World Trade Organization (the organization that used to be the world’s principal trade arbitrator) over allegations of dueling illegal subsidies to their respective aircraft industries. A couple of years ago the WTO said both that both of them were guilty.
So, in October 2019, the WTO said the U.S. could legally impose tariffs on $7.5 billion worth of European exports in retaliation for Europe’s aid to Airbus. In October, Washington imposed 10% duties on Airbus aircraft and 25% tariffs on a range of European of consumer exports — Scotch, wine, champagne, cheese and olives to name a few.
The U.S. Trade Representative subsequently launched a review of its tariffs and sought input on whether it should remove some products from the October list of tariffs; increase duties on certain goods on that list up to 100%; or impose levies on additional products not included in the October list like designer handbags, shoes and cognac in the beginning. Their intent was to bring the Europeans to the negotiating table.
But these EU products may not be out of the woods. USTR is utilizing a trade tactic called “carousel retaliation” where the U.S. may shift tariffs every 180 days or so, on EU goods from an expansive list. This uncertainty is creating intense headaches for American importers as well as the Europeans not knowing what product might be hit next. This has only been used a couple of times since the law was passed allowing for it and then only on a limited basis.
Some of these luxury brands may have dodged a bullet on Valentine’s Day. But, if an agreement is not reached before the next carousel deadline in several months, and the U.S. follows through with its plan, it could hammer shares of European luxury brands likeGivenchy and Hermes or LVMH Moet Hennessy Louis Vuitton who are particularly vulnerable because it produces a wide array of luxury products.
Such an agreement in the near term does not appear likely, because so far the EU’s offers have been unacceptable. They seem to be hoping another WTO ruling, out this summer could provide the EU with the right to retaliate against American goods in response to U.S. subsidies for the Boeing. The problem is the U.S. subsidies are really tied to Washington state subsidies for Boeing that are small compared to the huge subsidies from the EU to Airbus. The EU has stated it may impose retaliatory tariffs on U.S. rum, vodka, and brandy.
If the products listed in the annex posted in the federal register or threatened in the broader list of EU products impact your company, the MBS Trade Team is already working on this matter for clients and can assist. There will be another round or review for products to be tariffed starting immediately and your participation in the process can make a difference. Please contact any of us.