WTO to back U.S. tariffs on Europe in clash over Airbus subsidies

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© Reuters. FILE PHOTO: An Airbus A350 takes off at the aircraft builder’s headquarters in Colomiers near Toulouse

By Philip Blenkinsop and Tim Hepher

BRUSSELS/LONDON (Reuters) – The World Trade Organization was poised on Wednesday to open the door to hefty U.S. tariffs on European goods over illegal subsidies for Airbus, pushing a 15-year-old row over support for plane giants to the center of fraught global trade relations.

The Geneva body said it would publish at 4 p.m. local time (1400 GMT) its decision on a U.S. request to impose up to $11.2 billion in tariffs on European Union goods, but people close to the case expect WTO arbiters to award about two-thirds of that.

The WTO has found that both Europe’s Airbus (PA:) and its U.S. rival Boeing (N:) received billions of dollars of illegal subsidies in the world’s largest corporate trade dispute, a legal marathon dating back to 2004.

The cases are expected to lead to tit-for-tat tariffs, beginning with the U.S. measures, deepening transatlantic trade tensions and posing new problems for businesses and markets already roiled by a trade war between Washington and Beijing.

A three-person WTO arbitration tribunal is expected to announce that the United States suffered harm equivalent to roughly $7.5 billion a year from discounted European government loans for the Airbus A350 and A380 passenger jets, according to the people close to the case. Such a decision that would allow Washington to target EU goods worth the same amount.

The focus of nervous global financial markets will then shift to Washington where the U.S. Trade Representative is expected to move quickly to narrow down a preliminary list of goods in line for tariffs, a U.S. source said.

The agency’s provisional list of products that are eligible to be targeted with tariffs up to 100% covers goods with an annual trade value of $25 billion and ranges from Airbus jets themselves to helicopters, wine, handbags and cheese.

Before any tariffs can be imposed, the WTO’s Dispute Settlement Body must formally adopt the arbiters’ report in a process expected to take between 10 days and 4 weeks.

Its next scheduled meeting is on Oct. 28, but Washington could request a special meeting 10 days after the arbiters’ report is published, suggesting an earliest possible final nod on Oct. 12.

The WTO’s decision on EU retaliation rights related to Boeing subsidies is expected early in 2020.

On Tuesday, the head of Irish budget airlines group Ryanair (I:) urged the United States and EU to pull back from the brink of a tariff war and said neither side’s aviation industry would survive a long dispute.

But Peter Harrell, a senior fellow at the Washington-based Center for a New American Security, saw no immediate peace deal.

“My sense is that there will be a settlement only after both sides have imposed tariffs on each other,” he said.

FRAGILE MARKETS

Importers led by U.S. airlines that buy Airbus jets have urged Washington to be selective when choosing industries to hit in order to avoid causing collateral damage to the U.S. economy.

Signs that the record corporate trade dispute involving Airbus and Boeing – the largest case ever handled by the WTO – is reaching a climax after years of arcane headlines and thousands of pages of rulings have weighed on European shares.

On Wednesday, European stocks () were already sharply lower ahead of the WTO decision after hitting their lowest in four weeks amid fears about the deteriorating global economy.

Sectors most sensitive to global trade and exports from luxury goods to mining companies () bore the brunt of the sell-off, with Gucci-owner Kering (PA:) and Hermes (PA:) down more than 2%. Airbus fell 1%

Makers of high-end handbags and accessories have also been under pressure due to the violent protests in Hong Kong.

The WTO award in the dispute could fuel rising trade tensions, diplomats say.

EU manufacturers are already facing U.S. tariffs on steel and aluminum and a threat from U.S. President Donald Trump to penalize EU cars and car parts. The EU has in turn retaliated.

The Trump administration has concluded tariffs were effective in bringing China to the negotiating table over trade, and in convincing Japan to open its agricultural market to U.S. products. Washington is unlikely to skip the opportunity to implement tariffs in the case over aircraft subsidies, according to current and former U.S. officials.

Airbus has said this would lead to a “lose-lose” trade war and has published a video stressing its contribution to the U.S. industry through local assembly plants and 4,000 direct jobs, headlined “Together, let’s keep American aerospace great”.

Some U.S. airlines have urged the administration not to go ahead with the tariffs, saying they could lead to layoffs.