By Emre Peker and Joshua Zumbrun 

The Trump administration will move swiftly to implement tariffs on $7.5 billion of imports from the European Union, following a decision from the World Trade Organization earlier Wednesday that authorized tariffs due to EU subsidies of Airbus SE.

The Office of the U.S. Trade Representative will impose the tariffs on Oct. 18, according to a senior USTR official, in what will be the largest escalation of tariffs against Europe since the U.S. imposed tariffs on steel and aluminum imports last year, potentially opening up a new rift in the Trump administration's global trade fight.

The U.S. was authorized to impose tariffs of up to 100% on $7.5 billion of goods by the WTO decision which followed a 15-year battle over support programs for aircraft makers Airbus and Boeing Co. The WTO will rule on a companion case against subsidies to Boeing, also deemed illegal, early next year, at which point the European Union will be authorized to strike back with tariffs of its own.

The U.S. will impose tariffs on the full $7.5 billion worth of goods authorized by the WTO decision, but the rate of those tariffs will be lower, set as a 10% tariff on large commercial aircraft, and 25% on agricultural and industrial goods, according to the official. A list of the precise goods facing tariffs will be published within a day, the official said.

The WTO ruled that the U.S. is entitled to levy tariffs on $7.5 billion of exports from the EU in response to the bloc's subsidies to Airbus. The decision Wednesday marks the biggest arbitration award ever issued by the trade regulator and concludes part of the 15-year battle over support programs for the two aircraft makers.

The WTO ruling set up a collision between allies that have long resolved most disagreements without resorting to duties. EU officials in Brussels have proposed negotiating a settlement to avoid tit-for-tat tariffs, but U.S. officials say Europe must first comply with WTO rulings. The standoff risks escalating trade tensions at a critical time.

President Trump is poised to decide by Nov. 13 whether to levy tariffs on EU cars and auto parts, raising the threat of a rapid escalation of trans-Atlantic duties on goods worth some $100 billion. Leaders of a new EU administration, slated to take office Nov. 1, have urged Mr. Trump to avoid a trade war.

At stake for the world's two biggest plane manufacturers is the fracturing of the market.

Under WTO rules, Washington and Brussels may levy tariffs on any products from aircraft parts to food, alcoholic beverages, motorcycles and bicycles. That could potentially dent Airbus sales in the U. S. -- and Boeing sales in Europe next year -- while also disrupting global supply chains.

The EU filed its WTO complaint against Boeing nine months after the U.S. case against Airbus. Washington, as a result, will be able to punish Europe first.

Washington has prepared a list of European goods valued at $21 billion from which it can select for tariffs. Brussels has a $20 billion list of U.S. exports to target.

"If the U.S. decides to impose WTO-authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same," EU Trade Commissioner Cecilia Malmstrom said earlier Wednesday. She said the U.S. hadn't responded to an EU proposal from July for a comprehensive plan to regulate subsidies for the civil-aircraft industry, and establish a global framework.

A U.S.-EU fight at a time Russia and China are subsidizing their aircraft-makers to compete with the world's two biggest plane manufacturers would be counterproductive, European officials say. French Economy and Finance Minister Bruno Le Maire said Wednesday that a U.S. decision to impose sanctions over Airbus instead of settling "would be an economic and political mistake."

Mr. Trump said in April that EU subsidies for Airbus hurt the U.S. and that "it will soon stop." He said Washington would impose tariffs to recover damages, a position the U.S. ambassador to the EU, Gordon Sondland, reiterated in September.

U.S. tariffs could prompt Europe to impose tariffs before seeking a settlement and even before the WTO rules on its case against Boeing, according to EU diplomats.

To avoid having no response until the WTO ruling, the EU is considering revoking a settlement with the U.S. from 2006 over tax exemptions for international sales structures used by Boeing and other U.S. companies known as foreign-sales corporations. That would enable Brussels to hit some $4 billion worth of U.S. exports, but also risks unraveling decades of similar trade settlements.

"You have to look at it from a tactical point of view," an EU diplomat said. "We bring it to the table to highlight all our options and create some leverage, but our line has been to just settle it with a negotiated solution."

While the EU hasn't yet decided on its immediate response, officials acknowledge that revoking old rulings might backfire -- and potentially even prompt U.S. car tariffs. It is within the EU's right to revoke a prior settlement, although it would be unusual.

Following Wednesday's WTO decision, Airbus called on Washington and Brussels to avoid tariffs that would "severely impact" the aircraft industry, hurt U.S.-EU trade relations and damage the global economy. Duties would raise costs for airlines on both sides of the Atlantic and hit a U.S. supply chain employing 275,000 people and billions of dollars in revenue annually, the European plane maker said.

"Airbus is therefore hopeful that the U.S. and the EU will agree to find a negotiated solution," Chief Executive Officer Guillaume Faury said in a statement. The aircraft maker, which risks losing sales because of potential levies, also sources some 40% of its parts from the U.S. and has a plant in Mobile, Ala.

Boeing accused Airbus of refusing to comply with WTO rulings and pushing the U.S. toward placing tariffs on European exports.

"Airbus could still completely avoid these tariffs by coming into full compliance with its obligations," Boeing said. "We hope it will finally do that."

The WTO aircraft battle could further strain trans-Atlantic trade relations amid a shaky truce in place since July 2018. A White House agreement at that time halted tit-for-tat tariffs on some $10 billion worth of European and American exports -- salvos that Mr. Trump triggered by slapping the EU with steel and aluminum duties that the bloc deemed illegal. But the two sides have yet to deliver on a pledge to strike an industrial-goods trade deal and liberalize commerce by cutting red tape.

"It takes two to tango, and I'm ready to engage politically with the United States to resolve our trade differences," said Phil Hogan, the EU agriculture commissioner who has been tapped as trade chief for the incoming administration.

During his confirmation hearing Monday at the European Parliament, Mr. Hogan said "it doesn't make sense" for the U.S. to shun EU proposals to settle the Airbus and Boeing disputes, especially since Brussels would soon be able to hit back against Washington's tariffs. He added, "We have to defend the European Union."

Write to Emre Peker at emre.peker@wsj.com

 

(END) Dow Jones Newswires

October 02, 2019 16:15 ET (20:15 GMT)

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