The WTO authorized the Trump administration to impose duties after it decided that the EU failed to completely end illegal loan subsidy programs for Airbus. The EU argues it has taken meaningful steps to comply and expects the WTO to validate that in a separate ruling.

The decision is the highest penalty ever granted by a WTO arbitrator. American officials said the United States would use the authority to impose a 10 percent tariff on Airbus aircraft and a 25 percent duty on various European agricultural and industrial goods effective Oct. 18.

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That’s short of the 100 percent tariffs the United States could have imposed under the WTO’s ruling. U.S. officials emphasized they could increase the duties, or even change which products are hit, if efforts to reach a negotiated settlement with the EU fail.

Cheese and dairy products figure prominently on the retaliation of list to the delight of U.S. dairy producers who face substantial sales barriers in the EU.

Imports of single-malt Scotch, Irish whiskey, liqueurs, French wines, sweaters, coffee, pipe cutters, various tools, sweet biscuits, olives and pork will also be slapped with 25 percent duties.

“For years, Europe has been providing massive subsidies to Airbus that have seriously injured the U.S. aerospace industry and our workers," U.S. Trade Representative Robert Lighthizer said in a statement. “We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.”

The Distilled Spirits Council, whose members sell alcoholic products on both sides of the Atlantic, called the new tariffs "a devastating blow" to an industry already facing a 25 percent EU retaliatory duty on American whiskey in response to Trump's steel and aluminum tariffs last year.

A verdict on a parallel case by the EU against U.S. subsidies for Airbus' arch-rival Boeing is expected in about eight months.

While Brussels' stated preference is to negotiate a settled resolution covering both cases, the European Commission is considering options to retaliate quickly, should Washington act on the ruling, EU trade chief Cecilia Malmström said before Wednesday's WTO announcement.

Even if the EU wins the right to retaliate on a similar amount of American exports in the Boeing case, the U.S. still has an important time advantage. The EU is therefore looking at prior WTO cases where it has already won the right to impose tariffs on Washington so it can hit back faster.

"Our readiness to find a fair settlement remains unchanged. But if the U.S. decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same," Malmström said in a statement acknowledging the WTO ruling on Wednesday.

Brussels "has consistently communicated to the United States that the European Union is ready to work with them on a fair and balanced solution for our respective aircraft industries," she added. "So far the U.S. has not reacted."

U.S. officials said the EU has no right under global trade rules to retaliate against sanctions approved by the WTO. They also strongly reject the EU’s assertion that both sides are equally guilty of subsidizing their aircraft producers.

“There is no equivalence between these two disputes,” an American trade official told reporters during a briefing. “The nature and the size of the subsidies provided by the EU dwarf anything provided by the U.S.”

Trump administration officials said the EU would be acting in “bad faith” if it imposed retaliation by tapping potentially billions of dollars of unused authority from an old trade dispute that the United States believes was resolved 13 years ago. That case involved illegal export subsidies for Boeing, which EU officials said was resolved in 2006 after Congress repealed the offending provisions.

American officials also accused the EU of not making a meaningful effort to resolve the dispute through negotiations.

“The reality is that we have only heard from the EU in the last month as this arbitration neared completion. That is disappointing and the EU ideas to date are not sufficient to stop the subsidies to Airbus and to stop the harm to the U.S.,” a senior U.S. trade official said during the briefing call.

U.S. ambassador to the EU Gordon Sondland previously told POLITICO that the U.S. was not only seeking an end to EU subsidies but also "recovery of those damages" already created.

For its part, Boeing had urged USTR to focus all of the retaliation at Airbus planes, helicopters, fuselages and wings.

“Europe is facing tariffs today because Airbus has refused for years to comply with WTO rulings," a Boeing spokesperson said. "Unfortunately, Airbus’s non-compliance will negatively impact European member-states, industries, and businesses completely unrelated to Airbus’s actions, as well as Airbus’s airline customers.”

Boeing suggested that compromise can be reached if Airbus comes into “full compliance with its obligations. We hope it will finally do that.”

EU officials have rejected the idea of paying Washington compensation for any damages, arguing Boeing has benefited from similar subsidies.

"Both the EU and the U.S. have been found at fault by the WTO dispute settlement system for continuing to provide certain unlawful subsidies to their aircraft manufacturers," said Malmström.

Reacting to today's announcement, Airbus CEO Guillaume Faury said U.S. tariffs "would have a negative impact on not only the U.S. airlines but also U.S. jobs, suppliers, and air travelers."

French Economy Minister Bruno Le Maire said the EU preferred an "amicable solution" to the dispute. However, "if the United States chooses to impose sanctions, it would be an economic and political mistake. We will be ready with our European partners to respond firmly to them."

The WTO's penalty ruling comes without a time limit. That means the U.S. can levy the new tariffs indefinitely unless it strikes an agreement with Brussels to cancel the tariffs — or until the WTO issues a new ruling that the EU is no longer in breach of subsidy limits.

Such a new ruling, however, is highly unlikely, because the United States is blocking the WTO's court of appeal, called the Appellate Body. The panel will be down to just one judge in December when the terms of two more judges expire. It needs at least three sitting members to issue rulings.

Therefore unless Trump changes course, the WTO will not be able to confirm whether Europe has lifted its Airbus subsidies. In other words, Trump could, in theory, maintain these tariffs perpetually.

This report first appeared on politico.eu on Oct. 2, 2019.

