Covid-19 Is a Chance to End Row Over Aircraft Aid

 In China, COVID-19, EMEA, Air, P5

Investors have been focused on the dan­gers of a full-blown trade war between the US and China blight­ing a world econ­o­my already severe­ly dented by the coro­n­avirus pan­dem­ic. But on Tuesday came a reminder that trade rela­tions between the US and the EU are also poor, and show­ing few signs of get­ting better. It was the latest skir­mish in an old battle that gave a glimpse of the state of play between the two trad­ing blocs; Airbus versus Boeing has been run­ning for the past 16 years, with both sides scor­ing some suc­cess­es in a dis­pute at the World Trade Organization. 

A ruling by arbi­tra­tors at the trade body paved the way for Europe to compile a list of goods worth close to $4bn a year on which it can levy tar­iffs in response to US sub­si­dies for Boeing. The ruling fol­lows one last October that allowed Washington to hit Airbus jets and other goods worth up to almost $7.5bn a year with import tar­iffs over aid to the European air­craft maker.

The tit-for-tat dis­pute has dragged on ever since the US first raised con­cerns over alleged ille­gal repayable launch aid for Airbus in 2004. But what used to be a long-run­ning phoney war is rapid­ly draw­ing in a range of other indus­tries, from wine and whisky man­u­fac­tur­ers to olives and blue­ber­ries. The poten­tial damage goes far beyond the aero­space indus­try.

It was clear even before Covid-19 that both sides needed to come to a nego­ti­at­ed set­tle­ment on the under­ly­ing issue: how to sup­port their air­craft makers. The dis­pute has already sucked up too much eco­nom­ic and polit­i­cal cap­i­tal. Today’s crisis and the prospect of seri­ous eco­nom­ic con­se­quences only under­line the urgency of a deal. Global aviation has been crippled by the pan­dem­ic. Cash-strapped air­lines are in no hurry to buy new air­craft. They do not need addi­tion­al rea­sons — such as expen­sive tar­iffs — not to buy them. At the same time, intri­cate cross-border supply chains that help to under­pin both air­craft makers need help, rather than added costs, to sur­vive this crisis.

Securing a set­tle­ment would require trans­paren­cy from both sides. Aircraft man­u­fac­tur­ing is by its nature an indus­try where sub­si­dies are ubiq­ui­tous. Brussels and Washington will con­tin­ue to sup­port each com­pa­ny so there needs to be a degree of hon­esty. Any system would need to be not only trans­par­ent but also enforce­able and set out recog­nised rules and dis­ci­plines both sides can adhere to.

A recent chang­ing of the guard on the European side offers hope of progress. Valdis Dombrovskis, the European Commission’s new trade com­mis­sion­er, on Tuesday reiterated his desire for a final set­tle­ment. Much rests on who will occupy the White House after next month’s US elec­tion. President Donald Trump’s aggres­sive “America First” approach has so far done little to aid progress. Yet a vic­to­ry by Mr Trump’s Democratic rival, Joe Biden, is not a guar­an­tee of a more con­cil­ia­to­ry approach when the prospects of one of the country’s largest exporters is at stake.

Ultimately, loom­ing com­pe­ti­tion from China might draw both sides to the nego­ti­a­tion table. President Xi Jinping has made no secret of his ambi­tion to turn his coun­try into an avi­a­tion pow­er­house. China’s first home­grown narrow-body pas­sen­ger jet, the C919, is in devel­op­ment. Covid-19 has dealt a hammer blow to the global aero­space sector. A pos­si­ble silver lining to the pan­dem­ic would be if it were to hasten the end of the Boeing-Airbus dis­pute — and signal the start of a revi­talised trad­ing rela­tion­ship between the US and the EU. 

Source: FT Aerospace & Defence

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