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U.S. Considers Way to Heighten Airbus Tariff Pain for the EU

The WTO ruled this year that the U.S. could retaliate against European products.

U.S. Considers Way to Heighten Airbus Tariff Pain for the EU
The cabin of an Airbus A380 at John F. Kennedy International Airport. (Photographer: Stephen Hilger/Bloomberg News)

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The U.S. may employ a trade weapon designed to maximize pain against the European Union in a move that will heighten transatlantic tensions and put further strain on global commercial ties, according to people familiar with the plan.

The office of the U.S. Trade Representative has already compiled a list of possible goods it will target once the World Trade Organization publicizes the amount of damages it suffered due to illegal European Union aid for Airbus SE. But instead of choosing a static list of products, the U.S. may rotate them to create uncertainty and hit as many industries as possible, said the people who asked not to be identified because the plans are private.

Following a 14-year dispute between the U.S. and the EU over illegal subsidies provided to Boeing Co. and Airbus, the WTO ruled this year that the U.S. could retaliate against European products. The specific amount of trade that the Trump administration is allowed to target will be made public by the Geneva-based body as soon as next week.

The so-called carousel retaliation allows a country to regularly shift around the targeted goods, which increases trade uncertainty for the receiving party and causes the most pain.

A USTR spokesman didn’t respond to a request for comment.

Tariff Threat

The U.S. threatened to apply the carousel approach at least twice before with the EU. One case involved how the EU imported bananas and the other was related to its ban of hormone-treated beef. Both cases were resolved before the U.S. put in place its rotational duties.

A panel of three WTO arbiters, as expected, said last week the U.S. can legally impose tariffs on an array of European exports in retaliation for Europe’s illegal government aid to Airbus. European sources say they expect the WTO arbiters to publicly circulate a report by month’s end that will allow new U.S. duties on a range of goods worth $5 billion to $7 billion per year. The U.S. estimates it can hit $11 billion in trade annually.

The U.S. list includes a range of European luxury items like whiskeys, wine, Champagne, handbags and men’s suits. The most valuable goods on the list are exports of European aircraft and parts.

In a previous dispute, the EU contended that this type of rotating tariff approach was overly punitive and didn’t conform with international rules.

“We are convinced the ‘carousel’ measure is illegal as it breaches the WTO requirement of equivalence between the damage caused by the sanction or ban and the retaliation proposed,” according to a 2009 EU statement related to the dispute over beef. The WTO never ruled on the measure’s legality.

Trump’s planned EU tariffs are unique for his administration because, unlike the trade war he started against China, the U.S. will be applying duties explicitly authorized by the WTO, an organization he’s threatened to withdraw from if it doesn’t reform.

Both sides have said publicly they want a negotiated outcome that would put to rest the dispute and EU officials have presented the U.S. with a number of proposals on the matter.

In about eight months, the EU is expected to be authorized to hit back at American goods in its own case challenging illegal subsidies for Boeing. That gives both parties some time to settle the matter, if there’s enough political will to do so.

--With assistance from Bryce Baschuk.

To contact the reporter on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Richard Bravo, Sarah McGregor

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