US-EU Summit may end aircraft trade row, but it needs to fly higher to succeed

An Airbus A350 jetliner flies over Boeing flags as it lands after a flight demonstration during the 51st Paris Air Show at Le Bourget Airport near Paris, on June 15, 2015. Photo by Pascal Rossignol / Reuters.

The first US-EU summit in nearly a decade has raised hopes (and resulted in many leaks) that some of the world’s most significant trade disputes may come to an end.

There is a chance that the bilateral tariffs imposed on Europe by President Donald Trump on large civil aircraft and possibly steel and aluminum tariffs will be abolished. However, the abolition of these tariffs is a necessary but not a sufficient condition for a successful transatlantic summit. The ambition – and the results – must be higher.

The optimism surrounding the US-EU summit is understandable. The pressure to achieve concrete political breakthroughs at the meetings in Brussels is palpable. But if policy makers are merely moving around tariffs on select physical goods, they have missed the opportunity to lay the foundations for a meaningful transatlantic relationship that will fuel the 21st century economy.

When US and EU leaders try to find a more effective alternative to China’s state capitalism model for economic growth and prosperity for the 21st competition policies from tech companies to climate-related fiscal policies and intellectual property waivers for COVID-19 vaccines.

In a report by the Financial Times on Monday evening, it said that on the eve of the US-EU summit, “two days of intensive negotiations in Brussels, the EU and the Biden administration on the threshold of confirming an agreement on subsidy rules for Airbus and Boeing.” The The subsidy dispute between Washington and Brussels is one of the longest-running battles in World Trade Organization (WTO) history and a serious nuisance to one of the world’s largest trade flows.

Promising moves by the US Trade Representative earlier this year put both metal and aircraft tariff policies on the way to a negotiated solution by the end of the year. The recent agreement on a global minimum corporate tax at the G7 finance ministers’ meeting also raises hopes that a trade war over taxes on digital services in Europe can be avoided to meet European political priorities.

A trio of parallel tariff talks is underway. They cover a range of isolated issues and trade tensions that have dominated transatlantic relations for years. The decades-long WTO dispute between Washington and Brussels over aircraft subsidies culminated, for example, in a recently passed WTO resolution authorizing the United States to impose tariffs on the EU. A parallel, retrospective WTO ruling in favor of the EU actually paved the way for a negotiated solution.

The stakes are certainly high. The political decision to end this trade dispute will send important signals to global trading partners for a future transatlantic policy on government subsidies. This is a sensitive subject. Much of the trade tensions with China stem from Beijing’s government-sponsored support to domestic businesses. Recent US legislation with an aggressive industrial policy that specifically counteracts geoeconomic competition with China suggests a deep American bipartisan consensus in favor of targeted subsidies. At the same time, the pandemic has sparked a much more permissive political stance on both sides of the Atlantic regarding subsidies to bring financial and economic stability amid extraordinary economic upheaval. Solving aircraft subsidy problems at this moment would therefore be full of irony.

Also think of the introduction of import tariffs on steel and aluminum by the Trump administration for reasons of national security and diversification of the supply chain. The move caused a stir in Europe, especially since imports from neighboring countries in America (Mexico and Canada) were largely excluded. Eventually, European initiatives to impose (but not enforce) taxes on American digital companies sparked retaliatory tariffs (temporarily waived) by the US Trade Representative under both the Trump and Biden administrations. US Treasury Secretary Janet Yellen recently announced that European officials will abolish digital taxes at the national level once implementation of the latest global corporate minimum tax agreement begins. An essential part of the agreement is not so much the 15 percent minimum tax rate, but rather the possibility of incurring tax debts at the place of consumption and not at the place of revenue recognition.

It is impressive to see that despite these political tensions, policymakers on both sides of the Atlantic have kept the volume of disagreement low enough to avoid loose talk about a renewed trade war. You want to reach an agreement and move forward. A deal through Airbus-Boeing would be welcome evidence of this goodwill.

Finding a way to resolve tariff and subsidy problems for aircraft, steel and aluminum, however, should not be confused with success in rebuilding a fragile transatlantic working relationship. It’s okay to end old arguments; but building a longer term framework takes more.

There are profound differences and political priorities in almost all issues that are important to the global economy. Policy makers in Europe routinely refer to “technological sovereignty,” by which they mean the need to curb the economic and digital role of foreign (mostly Silicon Valley) companies in their policies. Political priorities on these issues in Europe are increasingly at odds with American priorities.

Many will rightly celebrate any agreement to end longstanding collective bargaining disputes. But if politicians limit their ambitions, they are missing out on an important opportunity to lay the foundations for solving difficult problems of the data revolution and the digital economy. Real leadership that fosters transatlantic market competition and innovation will provide a more effective alternative to China’s state capitalism model for economic growth and prosperity, as well as a more meaningful foundation for the 21st century economy.

Barbara C. Matthews is a resident senior fellow with the Atlantic Council. She was the first US financial attaché to the EU with the diplomatic rank of ministerial advisor confirmed by the Senate. She is also the founder and CEO of BCMstrategy, Inc, which uses patented technologies to measure public risk.

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Fri, February 12, 2021

Time for transatlantic trade to take off

Trade tariffs continue to pose a threat to a COVID-19 weakened transatlantic economy, but there could be some light at the end of the tunnel now. To rebuild the transatlantic relationship, Washington and Brussels need to take the floor to reach an agreement on aircraft subsidies and move the US-EU trade agenda forward.

EconoGraphics
by
Ole Möhr