AIR Airbus SE

By Emre Peker 

BRUSSELS -- The U.S. is entitled to levy tariffs on $7.5 billion of exports from the European Union over the bloc's subsidies to Airbus SE, the World Trade Organization said, potentially opening up a new front in the Trump administration's global trade fight.

The WTO's decision on Wednesday concludes part of a 15-year battle over support programs for aircraft makers Airbus and Boeing Co. The WTO will rule on a separate EU case against U.S. subsidies to Boeing, also previously deemed illegal, in the first half of next year, determining the value of U.S. exports the EU will be permitted to hit with tariffs.

The ruling sets 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.

"We might very well use it, hoping we don't have to," EU Trade Commissioner Cecilia Malmstrom said Tuesday. She said the U.S. hadn't engaged with an EU proposal from July for a comprehensive plan to regulate subsidies for the civil-aircraft industry.

Mr. Trump said in April that EU subsidies for Airbus hurt the U.S. but 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.

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 trans-Atlantic tariffs, which Mr. Trump triggered by slapping the EU with steel and aluminum duties 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 that "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 10:29 ET (14:29 GMT)

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