EU set to impose new tariffs on US and Chinese goods

• United Kingdom

• Competition, EU and Trade - Export controls and sanctions

21-10-2020

On 13 October 2020, a World Trade Organisation (“WTO”) ruling granted the EU the right to impose tariffs on approximately USD 4 billion of US goods, in retaliation for US subsidies granted to an aircraft manufacturer. The ruling is the latest development in a 16-year old dispute, with both the EU[1] and the US[2] claiming that the other’s large aircraft manufacturer is unfairly subsidised.

Also on 13 October, the EU announced provisional tariffs of up to 48% on imports of aluminium extrusions from China, part-way through an EU anti-dumping investigation into whether Chinese producers are selling their products at unfairly low prices. The tariffs apply from 14 October until the investigation’s completion, which is expected in April 2021. Once the investigation is concluded the EU could apply duties for a further five years.

EU-US aircraft subsidy dispute

The EU-US aircraft subsidy dispute formally began in 2004, when the US filed a claim with the WTO alleging that an EU-based aircraft manufacturer had received USD 22 billion in unfair subsidies from several EU Member States. The EU retaliated with a counterclaim, alleging that a US-based aircraft manufacturer had received USD 23 billion in "trade-distorting" subsidies from the US, mainly for R&D projects. 

Over the years, the WTO has ruled that both sides had unfairly subsidised their large aircraft manufacturers, and both sides have subsequently taken steps to comply with the WTO rules.  However, in October 2019, the WTO ruled that the US could impose countermeasures against European exports worth up to USD 7.5 billion, as it found that the EU and its Member States had not complied fully with its previous WTO rulings regarding EU subsidies granted to an EU-based aircraft manufacturer. The Trump administration subsequently introduced tariffs of up to 25% on some EU and UK goods, including aircraft, wine and cheese.  In July 2020, the European Commission (“Commission”) confirmed that the French and Spanish governments had agreed with the EU-based aircraft manufacturer to modify the terms of the “Repayable Launch Investment” granted to it for the development of certain aircraft.[3] The Commission said the changes meant that the EU was in full compliance with the WTO rulings and that there was no ground for the US to maintain its countermeasures on EU exports.

The WTO’s October ruling allows the EU to impose tariffs of up to USD 4 billion as compensation from the US for its illegal subsidies to a US-based aircraft manufacturer.  The US considers that, since eliminating a preferential tax rate for aerospace manufacturing in March 2020, there is no valid basis for the EU to retaliate against any US goods.  However, at the current time, neither side considers the other to be fully compliant with the WTO rulings, and the dispute continues.

The EU has identified a wide range of US goods that it could target as a result of the WTO’s ruling, including aircraft, chemicals, citrus fruit, frozen fish and ketchup. However, the EU indicated that its preference is not to impose new tariffs, and instead to use the ruling as a cue to step up negotiations with the US over aircraft subsidies. 

The EU’s Commissioner for Trade, Valdis Dombrovskis, stated “I would much prefer not to [impose tariffs] - additional duties are not in the economic interest of either side, particularly as we strive to recover from the Covid-19 recession….it is my hope that the U.S. will now drop the tariffs imposed on EU exports last year.”

EU anti-dumping investigation against Chinese aluminium

On 14 February 2020, the Commission announced that it had initiated an anti-dumping investigation into aluminium extrusions originating from China following a complaint made by European Aluminium.  Aluminium extrusions are used as key components in the manufacture of cars, subway trains, bikes, aeroplanes and boats.

European Aluminium claimed that its member companies, which represent more than 25% of the total EU production of aluminium extrusions, are negatively impacted by the dumping of Chinese exports of aluminium extrusions into the EU. Gerd Götz, Director General of European Aluminium, alleged that the dumping has resulted in production lines and entire plants closing, with significant job losses as a result.  He further stated that Chinese companies more than doubled their exports into the EU in the past five years after lowering their export prices below production costs.

In September 2020, the Commission announced that it would impose provisional anti-dumping duties ranging between 30.4% and 48% on aluminium extrusion imported from China, part-way through its anti-dumping investigation. The tariffs apply from 14 October 2020 until the investigation’s completion, which expected in April 2021. The Chinese companies affected by the new measures include Guangdong Haomei New Materials Co Ltd, Guangdong King Metal Light Alloy Technology Co Ltd and Press Metal International Ltd.

Commentary

The WTO’s USD 4 billion compensation granted to the EU for US illegal subsidies could set the stage for negotiations between the two sides, especially considering the reduced appetite for tariffs during the economic crisis caused by the COVID-19 pandemic. The global aviation industry is under immense financial strain and representatives will be urging their respective governments to negotiate a solution that does not cause further economic harm.

We do not expect that any decisive action will be taken by either side until the results of the forthcoming US elections are known. Further, even if the EU does decide to impose tariffs, it must first request authorisation from the WTO, which it can do at the earliest at a scheduled meeting on 26 October 2020.

The EU’s provisional decision to impose tariffs on Chinese aluminium is not a great surprise given that the EU remained one of the last major markets that was unprotected against dumped Chinese exports of aluminium extrusions. Aluminium extrusions from China are currently subject to anti-dumping duties in the US, Canada, Australia and Vietnam.

[1]              See: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds353_e.htm.

[2]              See: https://trade.ec.europa.eu/wtodispute/show.cfm?id=268&code=2.

[3]              See: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1405.