United States proposes new tarifs on EU products in response to EU aircraft subsidies

The Trump Administration has identified the European Union as a new object of tariffs, releasing a list of proposed products that may be subjected to additional Section 301 tariffs in light of the EU’s subsidization of civil aircraft.

 

In detail

In the latest development in a World Trade Organization (WTO) decade-long investigation, the Office of the United States Trade Representative (USTR) on April 8 proposed a preliminary list of EU products to be covered by additional duties. The tariffs, which are being considered pursuant to Section 301 of the Trade Act of 1974, are intended to respond to EU subsidies paid to Airbus asserted to have had adverse effects on the United States.

Unlike other tariff measures the Trump Administration has put into place, the impetus for this set of tariffs relates to the WTO. The United States initiated a WTO challenge against the EU Airbus subsidies in 2004. Throughout the proceedings, the US position has been upheld, as the WTO Appellate Body sustained a Panel finding that the EU “Launch Aid” and “Member State Financing” measures constituted specific subsidies and “caused serious prejudice to the interests of the United States.”

The proposed list of products against which tariffs could be applied is divided into two sections:

The first section covers primarily aircraft and helicopters, and parts thereof; the additional tariffs would apply to those products only if they originate from any of four EU Member States: France, Germany, Spain, or the United Kingdom.

The second section covers a wide variety of products that are being considered for additional duties if they originate in any EU Member State, including seafood, cheese, citrus, olive oil, fruit products, wine, liqueurs, essential oils, yarn, carpets, sweaters, wool suits, ceramics, glassware, tools, cutlery, and clocks.

The USTR estimates that the harm from the EU subsidies is approximately $11 billion annually, to be confirmed based on the results of a WTO arbitration expected to be issued later this year. The USTR notice provides no insight as to any anticipated timing for imposition of the proposed tariffs; under the Section 301 framework there would appear to be no technical requirement requiring the president to await the outcome of the WTO arbitration. The notice does invite comment from ‘interested persons’ and advises of a hearing to be held on May 15, 2019 (request to participate in hearings must be received by May 6, 2019).

The takeaway

The international trade landscape continues to evolve with this latest list of proposed tariffs. The Trump Administration has used tariffs or the threat of tariffs as a lever to try to drive other outcomes, so it is possible that the proposed list may lead to demands or other negotiations. With the tariff measures expanding to cover more products and geographical regions, companies that do not already have a deep understanding of their trade profile and supply chain should undertake such efforts to aid in identifying potential exposure arising from current or future tariff actions.

For a deeper discussion regarding the Section 301 tariffs and how your business may be able to mitigate risks in the changing trade environment, please contact:

Simeon Probst, PwC Partner, Basel
+41 58 792 53 51
simeon.probst@ch.pwc.com

 

Image source: unsplash.com