LONDON/BRUSSELS/GENEVA (Reuters) – The United States won approval on Wednesday to slap import tariffs on $7.5 billion worth of European goods over illegal EU subsidies handed to Airbus, threatening to trigger a tit-for-tat transatlantic trade war as the global economy falters.
The decision by the World Trade Organization pushes a 15-year corporate dispute over illegal support for transatlantic plane giants to the center of caustic world trade relations and comes on top of a tariff war between Washington and Beijing.
A panel of three WTO arbitrators said the United States had suffered harm equivalent to $7.5 billion a year from discounted European government loans for big jets like the Airbus A380, the world’s largest airliner. The decision – confirming a figure reported by Reuters last week – allows Washington to target EU goods also worth $7.5 billion, but bars tariffs on financial services.
In response, the European Commission said U.S. trade sanctions would be “short-sighted and counterproductive”. There was no immediate comment from U.S. officials.
The WTO had already found that both Europe’s Airbus (AIR.PA) and its U.S. rival Boeing (BA.N) received billions of dollars of illegal subsidies in the world’s largest corporate trade dispute, a legal marathon dating back to 2004.
The global trade body is due to decide early next year on the level of annual tariffs the EU can impose on U.S. imports.
The focus of nervous markets will now shift to Washington, where President Donald Trump has taken an aggressive stance on international trade relations. The U.S. Trade Representative is expected to move quickly to narrow down a preliminary list of goods in line for tariffs, two U.S. sources said.
The agency’s provisional list of products eligible to be targeted with tariffs covers European goods with an annual import value of $25 billion and ranges from Airbus jets themselves to helicopters, wine, spirits, handbags and cheese.
Broad selling amid worries over slowing global growth that had punished European stocks earlier on Wednesday accelerated as the ruling revived worries about damage to the already-ailing regional economy. The pan European STOXX 600 index was down 2.5%, on track for its worst day since December 2018.
Airbus shares fell as much as 1.3% hitting their lowest since June 4, while Pernod Ricard (PERP.PA) extended losses and was down 0.2% at 1448 GMT.
German Chancellor Angela Merkel said the decision would weigh on the European planemaker, one of the country’s largest industrial employers and headquartered in France.
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 Monday Oct. 14, the first working day after the deadline.
‘LOSE-LOSE’ TRADE WAR
In the largest case ever handled by the WTO, Washington had requested permission to impose tariffs on up to $11 billion of EU goods. Brussels is pushing for tariffs of around $10 billion on American goods in the parallel process over Boeing subsidies.
On Tuesday, the head of Irish budget airlines group Ryanair (RYA.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.
While the level of tariffs amounts to less than three days worth of trade between Europe and the United States, 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.
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”.
However, not all analysts see the WTO’s aircraft subsidy row – with its thousands of pages of specialist evidence – inflaming broader international trade tensions.
“In some ways it is a distinct issue from the rest of the Trump trade wars,” said Constantine Fraser of UK research firm TS Lombard.
“I think the White House is going to be aggressive in pursuing this, but I don’t think there is necessarily any kind of read-through from this to the prospect of tariffs on cars.”
Additional reporting by Stephanie Nebahay in Geneva, Josephine Mason and Danilo Masoni in London, Andreas Rinke in Berlin, Andrea Shalal, Heather Timmons, David Lawder and David Shepardson in Washington; Writing by Tim Hepher and Philip Blenkinsop, Editing by Pravin Char