Exclusive: U.S. offers tariff truce if Airbus repays billions in aid, sources say
By Tim Hepher, Andrea Shalal and Philip Blenkinsop
PARIS/WASHINGTON/BRUSSELS (Reuters) – The United States has offered to settle a long-running aircraft subsidy dispute with the European Union and remove tariffs on wine, whisky and other products if Airbus <AIR.PA> repays billions of dollars in aid to European governments, several sources close to the matter told Reuters.
The offer was made by U.S. Trade Representative (USTR) Robert Lighthizer days before the World Trade Organization’s (WTO) release on Tuesday of a report authorising Brussels to slap counter-tariffs on U.S goods over subsidies to planemaker Boeing <BA.N>.
Lighthizer’s proposal, however, is unlikely to win support from the EU, which appears set to ask the WTO at an Oct. 26 meeting to endorse $4 billion in EU tariffs on U.S. goods. The imposition of $7.5 billion of U.S. tariffs over Airbus subsidies has already started to hit European goods.
U.S. President Donald Trump told reporters that Washington would “strike back harder” if the EU went ahead with tariffs, adding, “They don’t want to do it.”
The European Commission confirmed it had received what it described as the first U.S. response to its own July proposal to end the dispute.
“That is the first time we have received U.S. feedback on some substantive aspects of our proposal. We have now provided our reaction and we are prepared to continue these discussions,” a Commission spokeswoman said.
The USTR’s office, which earlier this week said it was awaiting answers from the EU on an unspecified offer, did not respond immediately to a request for comment.
Airbus shares were down 3.3% at 1214 GMT, extending earlier losses.
The WTO has ruled that European government loans to Airbus were unfairly subsidised through low interest rates while Boeing received unfair support from tax breaks. Both sides say they have remedied past flaws and are in line with WTO rules now.
The loans stand at the centre of a dispute that has dragged on for 16 years and bedevilled trade relations in sectors ranging from luxury goods to agriculture as the two nations seek to punish aircraft subsidies with tariffs.
Under the U.S. offer, interest rates on past loans to support Airbus development programmes would be reset to a level that assumed that only as few as half of the projects would succeed, two of the sources said, speaking on condition of anonymity.
That would assume a higher risk than Airbus partner nations – Britain, France, Germany and Spain – have traditionally priced into the loans and reflects a speculative type of investment.
Such repricing could cost Airbus up to $10 billion, seen as unacceptable to the EU at a time when aircraft manufacturers have been seeking funds to survive the coronavirus crisis.
One European source called the U.S. proposal “insulting” and said it could accelerate the tariff war. A U.S. source, meanwhile, said Lighthizer was “serious” about getting Airbus to repay aid.
JOSTLING FOR POSITION
Analysts say the United States and EU are trying to strengthen their positions ahead of any future negotiations. Both sides have urged negotiations while accusing the other of refusing to engage seriously.
Repaying old subsidies is one of the thorniest topics in the discussions because WTO remedies are often forward-looking. The Commission said its proposals covered future aid for the sector.
The United States argues that merely addressing future types of support would fail to resolve ongoing harm to Boeing caused by the presence on the Airbus balance sheet of past loans that it can still use to develop jets and offer unfairly low prices.
Jamieson Greer, former chief of staff to Lighthizer and now a partner with law firm King & Spalding, said that any deal must involve some form of subsidy payback by Airbus.
“(Lighthizer) has been very public on the basic principle that … some form of restitution is an important part of any resolution,” Greer said.
European sources say that Boeing would also have to hand back billions if the same philosophy were applied to the U.S. planemaker.
Currently Airbus repays government loans only when its sales exceed a certain threshold, while loans for weak-selling planes such as the A380 superjumbo can be waived partly or fully.
Airbus says the disputed system favours taxpayers because loan repayments on successful jets such as the A320 far outweigh amounts written off on jets that fail to reach sales targets.
(Additional reporting by Kate Duguid in New York; Editing by David Goodman and Andrea Ricci)