Trade

EU trade official says Europe 'must stand up for itself' in aircraft subsidy fight with US

Key Points
  • Outgoing EU Commissioner for Agriculture, Phil Hogan of Ireland, told lawmakers at a European parliamentary hearing in Brussels that if the U.S. were to impose tariffs, Europe "has to stand up for itself."
  • It comes as policymakers on both sides of the Atlantic prepare for a World Trade Organization (WTO) ruling that could empower President Donald Trump's administration to impose billions of dollars of new tariffs on European products.
European Commissioner designate for Trade Phil Hogan arrives for his hearing at the European Parliament on September 30, 2019, in Brussels, Belgium.
Thierry Monasse | Getty Images

The European Union's next chief of trade policy said the United States is not yet "in a position" to engage on proposals to end aircraft subsidies.

It comes as policymakers on both sides of the Atlantic prepare for a World Trade Organization (WTO) ruling that could empower President Donald Trump's administration to impose billions of dollars of new tariffs on European products — ranging from civilian aircraft to cheese and handbags.

Outgoing EU Commissioner for Agriculture, Phil Hogan of Ireland, told lawmakers at a European parliamentary hearing in Brussels that if the U.S. were to impose tariffs, Europe "has to stand up for itself" and should identify American products that could be targeted for retaliatory levies.

Hogan is nearing confirmation as the EU's new trade commissioner for the world's largest trading bloc.

Hogan demanded updates to the WTO that could help avoid trade dispute resolutions driven by the "law of the jungle," and promised to work toward a "positive, balanced and a more mutually beneficial partnership with the U.S." He also insisted that it "takes two to tango."

His exchanges with legislators highlight the challenge facing a new European Commission under President-elect Ursula von der Leyen, Jean-Claude Juncker's successor.

Von der Leyen's new team seeks to underpin and strengthen a multilateral and global framework designed to tackle thorny issues ranging from trade to security, at a time when the current White House seems intent on undermining parts of the rules-based international system that so many senior European officials hold dear.

The complex dispute around aircraft subsidies is a case in point: It's finally nearing an end after almost 15 years of WTO back and forth.

VIDEO1:4201:42
Here's what the World Trade Organization's ruling could mean for the US

The issue centers on competing allegations from Washington and Brussels that the two parties' largest civilian airliner manufacturers, Boeing and Airbus respectively, benefited from and failed to reform tax concessions and state subsidies that the WTO previously prohibited.

A three-person WTO arbitration tribunal is expected to rule this week on the value of trade countermeasures that will be available to the United States if it seeks to impose them on the EU for the decades of "launch aid." The WTO has said that aid helped Airbus compete unfairly with Boeing when it came to worldwide aircraft sales.

USTR proposal

Back in April, the U.S. Trade Representative's office proposed a long list of EU products that could potentially face tariffs once the arbitration ruling is formally adopted by the WTO's de facto governing council, known as the Dispute Settlement Board, no later than October 28th.

His office had suggested that the U.S. suffered harm worth $11 billion, thanks to EU subsidies, and requested WTO approval to impose tariffs of up to 100% on EU goods, worth a roughly similar amount.

The Europeans had objected to that estimate, and as a consequence, the final amount must be determined by the WTO-appointed arbitrators.

VIDEO4:1804:18
The WTO will reportedly back US tariffs on EU goods

That list of potential tariff targets was split into two parts and included products worth a total of about $25 billion to provide the administration with options.

The first half of it focused on aircraft and aircraft parts that were manufactured in four EU member states, the U.K., Spain, Germany and France.

British and German government representatives have not responded ahead of the WTO ruling.

Spain's Ministry of Industry and Trade told CNBC it would be not be commenting on the matter, while the French Finance Minister's office told CNBC it would be an "interesting day" when the WTO publishes its decision.

The list's second half included a vast array of products that could come from any of the EU's 28 member states, ranging from fruit jellies to yogurt, knives to handbags.

I don't think that it's in anybody's interests to start raising tariffs right now.
Luisa Santos
BusinessEurope

European titans like Danone, Nestle and LVMH, which are wholly unrelated to the aircraft subsidy complaint against Airbus, could face costly trade barriers as a consequence.

"It will have a huge impact across different sectors," says Luisa Santos, director of international relations at Europe's largest business lobbying organization, BusinessEurope. "It's not going to be positive."

The USTR's office did not respond to a CNBC request for comment about its potential response, although back in April U.S. Trade Representative Robert Lighthizer issued a statement saying the U.S. would "respond immediately when the WTO issues its finding."

'Dialogue and cooperation'

But a remarkably similar WTO arbitration ruling, predicated on the favorable tax treatment and federal research financing that aided Boeing in contravention of WTO rules, is expected to permit the EU to take its own countermeasures against the U.S. in just a few months' time.

The only reason that the U.S. would strike now is to put pressure on the EU, and maybe get something out of the EU.
Luisa Santos
BusinessEurope

That has prompted EU leaders, independent trade experts and European business groups to suggest that a negotiated settlement before then is not only preferable for both sides, but necessary given the global economic slowdown.

"I don't think that it's in anybody's interests to start raising tariffs right now," says BusinessEurope's Santos. "The only reason that the U.S. would strike now is to put pressure on the EU, and maybe get something out of the EU."

Several trade experts and EU officials say that tariffs stemming from the WTO ruling on Airbus could be used as a cudgel, forcing European negotiators to include agriculture in bilateral trade talks, which have largely stalled in recent months.

For many, a positive recent development in the agri-food space that could serve as a model was a July agreement between the two sides on beef. This was, said the European Commission's Hogan, a "clear example" of the EU's willingness to "resolve an issue that's been going on a while but to do so through dialogue and cooperation."

- CNBC's Kayla Tausche contributed to this story.