Explaining the Airbus/Boeing deal: what’s in it and what happens next

The end of the endless struggle between the European Union and the United States over aircraft subsidies, which was overcome while eating meals of sea bass and lamb stew in Brussels, marks the end of what seemed to be a major truce The intractable trade conflict.

For policymakers in Brussels, the hope is that the Airbus-Boeing deal will decisively turn the page on trade tensions under Trump. For businesses on both sides of the Atlantic, it raises the specter of punitive tariffs on goods that extend beyond aviation to Georgia’s Italian cheese and cane molasses.

But DealAs the shutdown at the EU-US summit on Tuesday also marks the beginning of a long process that will require close cooperation if both sides are to turn their fires away from each other and focus on the mutual trade challenges posed by China.

What was the dispute?

It dates back to 2004, when the number of Airbus deliveries for the first time exceeded those of its American competitor. An earlier understanding about the subsidies collapsed, as the US administration alleged unfair state aid. The European Union responded with its own complaint. The World Trade Organization has opened investigations on both sides.

The main US criticism centered on the so-called launch aid provided to Airbus by the host countries in the European Union (at the time, the United Kingdom, France, Germany and Spain). The assistance amounted to government funding for the development of new models, paid for through royalties on future sales.

The European Union countered that Boeing benefited from US support that violated WTO rules – notably tax breaks from the state of Washington where the company is based. Mutual disputes ensued, with each side (successfully) accusing the other of failing to comply with WTO provisions.

In 2019, the World Trade Organization granted the United States the right to impose retaliatory tariffs worth $7.5 billion on European products. The list of American hits ranged from French wines to German machine tools.

The following year, the European Union was mandated to add more Tariffs It’s worth about $4 billion on American merchandise. The list of similarly selective findings ranged from spirits to ornamental fish.

Ending the conflict has only become a serious prospect with the emergence of the Biden administration — and a growing mutual awareness that it is hurting businesses on both sides, while aiding China’s ambitions in the commercial civil aviation market.

In March, the two sides agreed to Suspension of retaliatory tariffs For four months, creating a window for negotiations.

What’s in the deal?

Its core element is the suspension of punitive tariffs for five years, and the creation of a working group tasked with reaching a final understanding on past and future subsidies.

Boeing welcomed the agreement and said it “commits the EU to address the launch aid, and leaves out the rules needed to ensure that the EU and the US adhere to that commitment, without the need for further WTO action.”

Line chart of rebased stock prices showing the performance of Boeing and Airbus shares

However, to set some rules on the way, WTO standards on research and development funding, tax breaks and other types of support will be used. The agreement also calls for regular contacts at the ministerial level – primarily between EU Trade Commissioner Valdis Dombrovskis and US Trade Representative Catherine Tay – to review progress.

Most importantly, the two sides agreed to cooperate in dealing with “non-market” entrants to the civil aviation market. In a statement, US President Joe Biden explicitly linked it to confronting China’s “unmarket practices in this sector that give Chinese companies an unfair advantage.”

What are the implications for the aviation sector?

Welcome relief. sector was among Most affected by Covid-19The prospect of a trade war would have been a very costly distraction. Aircraft deliveries have remained well below their pre-pandemic levels, as cash-strapped airlines have canceled or delayed orders.

Airbus and Boeing officials also recently indicated that they want a settlement. In addition to the coronavirus, their longtime duopoly faces increased Chinese competition, with state-owned aerospace maker Comac developing the C919, designed to rival the Airbus A320 and Boeing 737.

Boeing forecast Last year, China would become the world’s largest aviation market, with about 25 percent of the total worldwide aviation growth coming from the Asian country over the past decade.

“I am very confident that we have resolved these differences,” Tay said on Tuesday. “We’re putting in our own litigation bags.”

Where does the deal leave EU-US trade?

It ends with one long-term source of disagreement. Brussels is now pushing for progress on another topic: Trump-era tariffs on steel and aluminum.

This has hurt EU producers and led to a separate wave of EU retaliation against American consumer goods such as Harley-Davidsons and bourbon. Biden and the heads of the European Union agreed on Tuesday to form a working group on the issue.

Bar chart of the European trade balance with the United States, by product group (billion euros) showing the EU surplus by sector

For the EU, this is a particularly bitter dispute as the Trump administration has justified the move by describing the EU as a threat to national security, along with other traditional US allies such as Canada. But while Canada was later granted an executive reprieve by Trump as part of an updated trade agreement, there was no relief for the European Union.

EU officials say the bloc is now taking a dual-track approach to ending conflicts while moving forward with a positive agenda. To this end, Biden and the heads of the European Union also agreed to create a “Trade and Technology Council” to cooperate in setting technical norms and standards for emerging sectors such as artificial intelligence and sensitive technologies such as semiconductors.

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