If the US and EU can settle their 16-year-old Airbus-Boeing quarrel, they’re in agreement on a number of other issues, such as renewing a WTO moratorium on digital duties and protecting fisheries.
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The EU is trying an end the 16-year-old US-EU dispute over aircraft subsidies and remove the WTO-authorized retaliatory tariffs the US imposed last October. A new agreement to rein in aircraft subsidies would be in both the US and EU national interest. Other players are planning to enter the global market for large civil aircraft – including Russia, Japan, China, Canada, Brazil. A US-EU deal would make it clear they will challenge other countries that attempt to sell heavily subsidized new aircraft — thus protecting the market for both Boeing and Airbus.
Brussels announced on July 24th that it has fully complied with the WTO ruling against its Airbus subsidies. This involved amending the contracts Airbus had with the Spanish and French governments so that it pays higher interest on the launch aid subsidies it received. The EU added that it is “strongly committed to a negotiated settlement of this long-running dispute.”
The US hasn’t hit the EU as hard as it could have, presumably to leave open the possibility of a negotiated settlement. Non-aircraft industries on both sides of the Atlantic fear being hit by retaliation if the dispute isn’t settled. Accordingly, they have been urging its resolution.
Remaining obstacles
But it’s not clear that this week’s move by Spain and France will be enough. First, the WTO will probably have to rule on whether the EU has now fully complied. Secondly, Lighthizer recently told Congress that the dispute will be resolved only when the EU not only ends its subsidies but also agrees to pay compensation for the subsidies previously given to Airbus. The EU hasn’t offered to meet the latter demand. A few other US complaints against Airbus and EU complaints against Boeing also need to be resolved.
The potential for tariff escalation comes at a time when trans-Atlantic trade relations are already taut due to the Europeans’ enactment of digital services taxes and a US threat to retaliate, US moves to cripple the WTO, US threats against European companies doing business with Iran, and the US president’s threats against European cars. But if a negotiated agreement could be reached in the aircraft dispute, it might give momentum to easing other points of tension, and perhaps even get US-EU trade talks back on track.
WTO fight over e-commerce moratorium intensifying
Meanwhile, the WTO moratorium on duties on digital products, which has been renewed every two years since 1998, is up for renewal at the next WTO Ministerial Conference in June 2021. Until now, every WTO Ministerial Conference has agreed to renew the Declaration on Global Electronic Commerce and “maintain the current practice of not imposing customs duties on electronic transmissions.”
The moratorium is becoming increasingly controversial in the wake of the COVID-19 pandemic: first, it has thrown countries’ fiscal conditions into crisis so that they need new sources of government revenue, and second, the pandemic has caused an explosion in electronic trade as lock-downs and forced social distancing are causing people around the world to turn more to electronic goods and services. These are replacing goods and services that were previously delivered offline and taxed. The companies that are delivering goods and services online are taking in much more revenue than before, and it’s not being taxed.
India and South Africa have paired up in opposition to the moratorium. They presented a paper to the WTO calling for ending it, claiming it is “catastrophic” for low-income countries. It denies them the ability to recoup lost tax revenue and also denies them the ability to protect their own fledgling online companies.
However, many WTO members still strongly support continuation of the moratorium, including the US, Japan, and the EU.
WTO fight over fishery rights ongoing
In addition to the e-commerce talks, the key agreement that WTO members want to reach before next year’s ministerial conference is on restraining fisheries subsidies and illegal, unreported and unregulated (“IUU”) fishing. The rich countries including the US and environmentalists are concerned about overfishing. Developing countries, led by China and India, want to be able to support poor fishing communities (India) or want expanded access to fishing resources and areas (China). The controversy centers about how much Special & Differential Treatment (S&DT) should be given developing countries. The US balks at larger developing countries – China in particular – that insist on S&DT.
Ambassador Dennis Shea, the US Permanent Representative to the WTO, brought up once again the US complaint over the WTO allowing members to self-designate as “developing countries” and thus enjoy Special & Differential Treatment at the WTO. He indicated that the US is actively engaging with members on the question: “We are carefully considering some constructive feedback that we received just before the pandemic reached our shores. We will come back to Members on our proposal very soon.”
This may be the first significant US effort to negotiate over a specific proposal for WTO reform. Usually, Washington has criticized WTO policies and practices without clarifying what changes could satisfy the US. The issue of self-designation is one on which there is support for the US position among other WTO members, though the opposition, led by China and India, is very strong as well.
Brazil joins US in fighting China’s non-market economy
The US is also teaming up with Brazil at the WTO against China’s non-market economy. The joint statement lists criteria that constitute a market economy, then notes, “Simply put, if your workers and businesses are subject to market constraints and disciplines, it is fundamentally unfair to force them to compete with another Member’s enterprises that are not subject to these same constraints and disciplines.” Governance and government regulation have a role in the economy, Ambassador Shea said, but “when the state puts its thumb – or even its fist – on the scale to distort competition and drive preferred outcomes to benefit certain domestic actors, that is unfair.”
The US is itself vulnerable to criticism that the government has been interfering in the economy and the free market. But the US-Brazil statement certainly puts China on the defensive. It also puts Washington forward demanding that the WTO deal with China’s market distorting practices, even though it does not point to specific reforms it wants to see at the WTO. Still, it is noteworthy that the Trump administration is taking a renewed interest in the WTO after three previous years of neglect.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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