LDN - Business

Airbus offers subsidy concession to end U.S. tariffs

[July 24, 2020]

By Tim Hepher

PARIS (Reuters) - Europe's Airbus said on Friday it was amending French and Spanish government loans in a "final" bid to reverse U.S. tariffs and jog the United States into settling a 16-year-old dispute over billions of dollars of aircraft subsidies.

The planemaker said it had agreed to pay higher interest rates on two loans that it received to help develop its A350 jet, which entered service in 2015.

The European Union and France said the move to accept higher interest rates should settle the row with the United States at the World Trade Organization. The EU said it would retaliate with sanctions should that not happen.

"In the absence of a settlement, the EU will be ready to fully avail itself of its own sanction rights," Trade Commissioner Phil Hogan said.

The loans are part of a system targeted by the United States in the world's largest corporate trade dispute, which has also involved European condemnation of U.S. support for Boeing.

Failure to withdraw Airbus subsidies completely led to WTO approval for U.S. sanctions last year on up to $7.5 billion of European goods ranging from wine to whisky.

Trade groups are bracing for an escalation of the row in the autumn when the EU is expected to win WTO approval to hit back with its own tariffs on U.S. goods over subsidies for Boeing.

The WTO has faulted both Europe and the United States for doling out illegal support to their respective jetmakers. For the last eight years, the argument has been mainly about whether each side obeyed those rulings amid multiple appeals.

"With this final move, Airbus considers itself in complete compliance with all WTO rulings," Airbus said.

In May, the United States declared itself in full compliance with WTO findings after Washington state abolished aerospace industry tax breaks that largely benefited Boeing.

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An Airbus A350 takes off at the aircraft builder's headquarters in Colomiers near Toulouse, France, September 27, 2019. REUTERS/Regis Duvignau/File Photo

INDUSTRY PRESSURE

Although Airbus is not officially a party to the case, which pits the United States against the EU as well as Britain, France, Germany and Spain, Friday's statement opens the door for negotiations to end the dispute, a European source said.

Both sides have repeatedly urged negotiations while accusing the other of failing to respond seriously to the invitation.

The latest move comes amid increasing pressure on Airbus and European governments from industries hit by U.S. tariffs, including Scotch whisky makers and Spanish farmers.

They are frustrated at being dragged into a dogfight between aerospace giants just when their own industries are also having to cope with the impact of the coronavirus epidemic.

Airbus said U.S. airlines were also suffering from the tariffs which apply to imported European jets.

European officials are also trying to quash the U.S. tariffs on legal grounds but say they have been thwarted by a procedural row after Washington blocked appointments to the WTO's appeals body. U.S. President Donald Trump has been critical of the WTO.

At the same time, the timetable for EU retaliatory sanctions has slipped by several months, to September or October, because of the difficulty of reviewing documents during the COVID-19 crisis.

"We are in an impasse and need to get out of it. It is a way to show good faith and open the door to find a solution," a European industry source said, referring to the loan decision.

Boeing had no immediate comment. The United States Trade Representative was not immediately available outside business hours. A U.S. source said that any concessions from Airbus would be welcome but would have to be studied in detail.

(Reporting by Tim Hepher, Leigh Thomas, Gabriela Baczynska, Kate Abnett, Editing by Catherine Evans)

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