US, EU End Aviation Trade Crisis, Look to China’s Rise

BRUSSELS – The United States and Europe agreed on Tuesday to set aside a 17-year dispute over aircraft subsidies for Boeing and Airbus and work together to counter China’s global ambitions to dominate key industries.

The deal, which suspends the threat of billions of dollars in punitive tariffs on everyone’s savings for five years, is a clear sign of President Biden’s seriousness in mending relations with the European Union and securing the rich bloc from his. aside in what he sees as a generational challenge of the rise of a technologically advanced and autocratic China.

Mr Biden sees Europe as an ally, not an economic ‘enemy’ as former President Donald J. Trump did, and he pledged to work with the European Union to counter ambitions China’s military, economic and technological systems. While Mr. Trump also saw the dangers of an unrelated China, he did little to try to bring Europe in, instead punishing it with tariffs. Mr. Biden believes that as Asia as a whole grows in population and wealth, the democratic world that believes in the rule of law and multilateral institutions must do more to protect its economies and values.

“Europe is our natural partner, and the reason is that we are committed to the same democratic standards and institutions, and they are increasingly under attack,” Biden said during a speech in Brussels.

The deal means significant punitive tariffs, estimated at $ 11.5 billion, on a wide variety of goods, including aircraft parts, wine, tractors, spirits, molasses and cheese, will continue to be suspended after the two parties agreed to do so in March then to settle the dispute. The battle first erupted in 2004 over government subsidies that Europe is giving to Airbus.

“The Biden administration is clearly keen to defuse tensions with traditional allies while rebuilding a common front with them to harden the tone with China,” said Eswar S. Prasad, former head of the International Monetary Fund for China. “Along with the renewed leadership of the United States in the G7, it is becoming evident that the major Western economies are now uniting in their attempts to curb what they see as unfair Chinese trade and economic practices. “

It will be a delicate task for Europe, which does a lot of trade with China and does not view Beijing as a rival or a military rival, as Washington increasingly does. But Europe has also understood that China’s open ambitions under Xi Jinping and its abuse of foreign trade rules and domestic human rights make it a much more complex partner.

The European Union now identifies China as “an economic competitor and a systemic rival”, no longer believing, as German Chancellor Angela Merkel has long maintained, that trade and engagement will bring political moderation to it.

Michael Pillsbury, the Hudson Institute scholar who was one of Mr. Trump’s top Chinese advisers, warned that the Biden administration “would find it much more difficult than they thought to bring these allies openly side with the United States on Chinese strategy because of heavy dependence on the Chinese export market. This includes Germany’s heavy reliance on Chinese auto purchases.

German officials say they will need time to change their export-oriented economy which is currently so dependent on China, knowing that the Chinese will soon be able to make some of the sophisticated machine tools they are using on their own. are currently buying – and trying to copy – from more advanced European companies.

The detente on Airbus and Boeing came when Mr Biden met with key European leaders at a US-EU summit that also approved a new Joint Trade and Technology Council to consult more formally on trade standards and techniques. Part of the council’s goal is to agree on how to limit Chinese digital ambitions in areas such as artificial intelligence and cybersecurity and filter Chinese investment in areas that may have implications for this. security for Europe and the United States.

A senior US official said the council would operate as an inter-institutional body and coordinate with Brussels in priority areas such as artificial intelligence standards, quantum computing and biotechnology, supply chain resilience and export controls. European officials said its work would likely start with sensitive issues such as semiconductors and 5G infrastructure.

The Boeing-Airbus deal follows two days of intense negotiations in Brussels between Katherine Tai, the US trade representative, and Valdis Dombrovskis, the EU trade commissioner. European member states approved the deal overnight.

“This really opens a new chapter in our relationship as we move from litigation to cooperation on airplanes – after 17 years of dispute,” said European Commission President Ursula von der Leyen.

After the meeting, Biden flew to Geneva, where he will meet Russian President Vladimir V. Putin on Wednesday. Mr Biden will be able to present himself as the leader of the Western democracies, having first attended summit meetings of the Group of 7, NATO and now the European Union, where he has consulted widely with the allies.

“I argued that the United States and Europe – and democracies around the world – are stronger when we work together to advance our common values ​​such as fair competition and transparency,” Mr. Biden in a statement. “Today’s announcement shows exactly how this can work in practice.

In a briefing for reporters on the aviation deal, Tai said the two sides agreed to extend the tariff suspension for five years while working together to counter Chinese investments in the aviation sector, especially from public enterprises.

The Chinese state-sponsored aerospace manufacturer Commercial Aircraft Corporation of China completed the first public flight test of its airliner in 2017 and is quickly becoming a rival to Boeing and Airbus in global aircraft manufacturing . Chinese airlines are also state-run, and Beijing can order them to buy domestically-built planes, reducing Boeing and Airbus’ market share.

The United States and the European Union would work together, Tai said, “to challenge and counter China’s non-market practices in this sector in specific ways that reflect our standards of fair competition.”

Speaking at a post-summit press conference, Ms. Tai explained, “For almost 20 years we have faced each other, fighting each other in terms of competition among our industries. While we have engaged in this fight, others are taking the opportunity to launch their own industries, and we have been too busy fighting each other to pay attention.

But she warned that the deal set limits on the subsidies the European Union would be allowed to provide to Airbus, warning that the United States would reimpose billions of dollars in tariffs if subsidies from European Union countries crossed a threshold. “Red line”.

“These tariffs will remain suspended as long as EU support for Airbus complies with the terms of this agreement,” she said. “If EU support crosses the red line and US producers are unable to compete fairly and on a level playing field, the US retains the option of reactivating tariffs. “

It’s a critical time for both companies, as they struggle to weather a downturn caused by the pandemic. Most in the industry expect it to be years before airlines and aircraft manufacturers can fully shake off the effects of the recession.

Tuesday’s announcement is not expected to have an immediate impact on businesses. Boeing and Airbus have already started withdrawing subsidies they were receiving – Airbus had said it would increase repayments on low-cost loans it received from several EU countries, while Washington revoked relief state tax granted to Boeing.

Nonetheless, the deal eliminates a lingering concern for the two companies as they seek to increase sales globally.

Mr Biden’s approach to Europe is both political and practical: the European Union, given its enormous economic power as a market and as a trading bloc, has more impact on American life than any other multilateral institution. Mr. Biden wants more support from the Europeans to limit the harmful effects of China’s rise to power.

Large countries like Germany, France and Italy are reluctant to join Washington in a conflicted relationship with China, but attitudes harden due to Chinese human rights abuses, business practices and espionage industrialized industry. The European Union, for example, has agreed to a voluntary investment screening program, similar in concept to an American panel known as the Committee on Foreign Investment in the United States.

There are other significant disputes between the United States and the European Union, including another lingering case over Trump-era tariffs on steel and aluminum. In 2018, Mr. Trump used special “national security” provisions to impose tariffs, which sparked a larger trade war.

The European Union retaliated by targeting some $ 3.4 billion in US imports with tariffs on a range of high-profile products, including Harley-Davidson motorcycles, Levi Strauss jeans and bourbon whiskey.

Brussels suspended its retaliatory tariffs for six months in May, hoping to negotiate a longer-term solution to the problem of overcapacity of steel around the world.

Mr Dombrovskis urged Mr Biden to “speak of courtesy” and drop these tariffs.

Alan Report, Monika pronczuk and Niraj Chokshi contributed reports.

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