U.K. to Drop Tariffs on U.S. Goods in Airbus-Boeing Dispute
Cargo shipping containers sit at a port in Felixstowe, U.K. (Photographer: Simon Dawson/Bloomberg)

U.K. to Drop Tariffs on U.S. Goods in Airbus-Boeing Dispute

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The U.K. government said it will drop the tariffs that the EU had imposed on $4 billion of U.S. goods, part of the long-running dispute over illegal aid to aircraft manufacturers Boeing Co. and Airbus SE.

The move is designed to reduce trade tensions with the U.S. and “show that the U.K. is serious about reaching a negotiated outcome,” the Department for International Trade said in a statement. Britain will set its own tariff policy when it completes its split from the EU at year-end.

The EU announced the tariffs, which target various Boeing models and products including spirits, nuts and tractors, in November as part of a tit-for-tat escalation against the U.S. -- which itself imposed levies on $7.5 billion of EU products in 2019. British exports ranging from Scotch whisky to biscuits to clotted cream have suffered from the duties.

Britain is “showing the U.S. we are serious about ending a dispute that benefits neither country,” International Trade Secretary Liz Truss said in the statement. “We want to de-escalate the conflict.”

The U.K. said it will continue to impose tariffs in retaliation to levies placed on Britain’s steel industry by the U.S. Those duties target a long list of U.S. items, including steel and aluminum products, plus a range of other goods like textiles and foods.

Britain’s move is “good news” for aviation in both the U.S. and U.K., Boeing said.

“This suspension of harmful tariffs allows us to work with the U.K. as a global commercial aviation hub and offers continued support for our employees in Puget Sound and Charleston,” the Chicago-based company said in a statement. “We support a level playing field with free and fair competition across aviation.”

Boeing is uprooting the 787 Dreamliner program from a storied manufacturing hub north of Seattle and shifting the work to a non-union plant in South Carolina amid slumping sales of wide-body jetliners.

Its European rival Airbus was caught off guard by the U.K. government’s decision, according to people familiar with the matter.

Airbus said in a statement Wednesday that its “goal remains to find a negotiated settlement to this long-standing dispute to avoid lose-lose tariffs.”

The U.S. Trade Representative’s office welcomed the U.K.’s decision, but said Britain didn’t have authority from the World Trade Organization to impose tariffs because it didn’t bring a case to the WTO in its individual capacity. The U.S. sued the EU as well as France, Germany, Spain, and the U.K. individually over subsidies to Airbus.

“As a result, the WTO authorized the U.S. to impose countermeasures on each of those countries and the entire EU,” the USTR said in an emailed statement. “Like the U.K., the U.S. considers that a negotiated settlement best serves the interests of all parties. In that regard, the U.S. encourages the U.K. to bring renewed focus to settlement discussions.”

The U.K. has in recent months engaged in its own discussions with the Trump administration about finding a resolution to the aircraft dispute and has been pushing hard for the U.S. to lift tariffs on Scotch whisky in particular. But because of Airbus’ significant presence in France and Germany any real deal is likely to have to involve the EU.

The bloc’s trade commissioner, Valdis Dombrovskis, last week said the U.S. and Europe were engaged in intense negotiations. He added that “it’s possible” that both sides will reach an agreement by Jan. 20 governing aid to Boeing and Airbus. He reiterated an offer to remove EU retaliatory tariffs on $4 billion of American goods if the U.S. does the same for its duties on $7.5 billion of European products.

U.K. to Drop Tariffs on U.S. Goods in Airbus-Boeing Dispute

Stephen Vaughn, who served as Lighthizer’s right-hand man until last year, said the U.K.’s move was helpful from a U.S. perspective and a sign of goodwill. It also would put pressure on the EU, he said.

“It’s very encouraging to see that the U.K. and U.S. are making progress on these negotiations,” Vaughn said.

British Prime Minister Boris Johnson is trying to build up ties with President-elect Joe Biden, with the U.S.’s incoming leader warning that any U.S.-U.K. trade deal would be contingent on Johnson protecting the Northern Ireland peace settlement as part of the U.K.’s exit from the European Union.

Johnson took a step to delivering what Biden asked for on Tuesday when he backed down on his plan to rip up parts of the Brexit withdrawal treaty relating to trade with Northern Ireland. British officials hope the latest olive branch on tariffs will further ease the path for trade negotiations with Biden’s team.

But Tuesday’s move also comes amid broader questions over how much power the U.K. retains post-Brexit to legally impose tariffs in cases that pre-date its exit from the EU. In the case of the Airbus-Boeing dispute, the U.K. insists it has kept that power.

When the EU rolled out the retaliatory tariffs on Nov. 10, it did so on behalf of the current 27 members of the bloc. The U.S. has behind closed doors also indicated that it believed the U.K. would not retain the legal power to impose retaliatory tariffs, according to one person close to the discussions.

Many business interests on both sides of the Atlantic are eager to see an end to the tariffs but none more so than the liquor industry.

Move Applauded

In a statement, the Distilled Spirits Council of the U.S. applauded the U.K.’s move not to apply retaliatory tariffs on U.S. rum, brandy and vodka. It also urged the U.S. to “intensify” its efforts to reach a settlement in the Boeing-Airbus dispute.

“This is a hopeful sign that a resolution to the debilitating tariffs on U.S. and U.K. spirits may be in reach,” the group said.

Since 2018, bourbon whiskey and its Scotch relative have been caught up in various trans-Atlantic tariffs aimed at applying pressure on key political constituencies. The EU targeted bourbon in large part because it is a product of the red state of Kentucky, home to Senate Majority Leader Mitch McConnell.

©2020 Bloomberg L.P.

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