Making airplanes is one of the most prestigious things countries can do, a testimony to their technical skills, engineering prowess and aspirations on the world stage. It can be a source of national pride, but also a trade flashpoint. Nothing illustrates this more than the global rivalry of Boeing Co. and Airbus SE, the Coke and Pepsi of the skies. The U.S. and European Union have been fighting over subsidies to their respective aircraft industries for nearly two decades and many companies on both sides of the Atlantic have become collateral damage in their tariff dispute. Now the two sides are looking for a way out.

1. What’s the fight about?

State aid, the increasingly common practice of governments doling out support to key manufacturers or industries. In 2004 the U.S. lodged a legal case at the World Trade Organization against the EU for its member state support to Airbus. In 2011 the WTO ruled that the EU provided Airbus with billions of dollars of illegal subsidized financing that enabled Airbus to launch its widebodied and short-haul planes. The EU opened a parallel case against the U.S. that successfully argued Boeing benefited from state subsidies as well as space and military contracts, which defrayed the cost of civilian aircraft development. The cases continued to wind their way through the WTO dispute process until 2019, when the WTO authorized the U.S. to retaliate with tariffs against $7.5 billion worth of EU exports annually. In October 2020 the EU won WTO permission to hit back with tariffs on $4 billion of American goods a year.

2. What kind of state aid did they get?

The governments of Germany, France, Spain and the U.K. provided Airbus with subsidies via launch-aid loans for aircraft development, equity infusions, debt forgiveness and various other financial contributions. The U.S. government provided Boeing with subsidies via federal research and development funding, state and local tax programs and infrastructure-related funding. Both the U.S. and EU allege that the other’s measures fail to adhere to the WTO’s Agreement on Subsidies and Countervailing Measures, which governs the use of state aid programs.

3. What’s changing now?

U.S. President Joe Biden and European Commission President Ursula von der Leyen agreed in a call on March 5 to suspend tariffs on billions of dollars of each other’s products for four months, easing the dispute and sending a clear signal that they want to see a solution. Through its duties, the U.S. has targeted key European products like French wine and Spanish olives while Europe has hit U.S. tractors, nuts and fruit. Some of the companies affected by the tariffs -- among the largest approved by the WTO to date -- have included European luxury brand owners such as LVMH Moet Hennessy Louis Vuitton SE that owns Givenchy and Fendi, alcoholic-beverage maker Bacardi Ltd., Caterpillar Inc. and Microsoft Corp.

4. Why are these aircraft manufacturers so important?

For more than 20 years Boeing and Airbus have maintained a duopoly in the large civil aircraft market, which is being squeezed as the Covid-19 pandemic reduces demand for new planes. Sales are commercially and politically important because they support thousands of jobs and represent a critical component of Europe and America’s overall trade balance. Geopolitical rivalry is baked into the relationship between the two companies. Airbus, based in Toulouse, France, was created half a century ago as a consortium bringing together the resources of European aerospace companies including France’s Aerospatiale, Germany’s Deutsche Airbus and Construcciones Aeronauticas SA of Spain. The political, industrial and technological aim was to challenge the dominance of U.S. passenger jet manufacturers: Boeing with its 707, 737 and 747 models, McDonnell Douglas with the DC-8, DC-9 and DC-10 range and Lockheed with its three-engined Tristar.

5. What is the U.S. endgame?

The U.S.’s original goal was to thwart launch aid financing for the Airbus A350 -- a rival to Chicago-based Boeing’s 787 Dreamliner. But Airbus had delivered more than 400 A350 aircraft by January 2021. At this point the only real benefit the U.S. can obtain, aside from applying retaliatory tariffs on European exports, is to prevent European launch aid financing for any new Airbus series at non-market rates. Both sides say they want to reach a settlement, potentially in the form of a new bilateral aircraft accord.

6. Does Brexit affect this dispute in any way?

The U.K., which was sued by the U.S. both individually and as an EU member, has been subject to 25% U.S. tariffs on key exports like Scotch whisky since 2019. In January the U.K. unilaterally dropped its retaliatory duties against the U.S. stemming from the Boeing dispute as a means to reduce trade tensions between the two countries. In March, the Biden administration reciprocated by suspending its duties on U.K. exports for four months so the U.S. and U.K. can focus on negotiating a “balanced settlement.” That move came a day before the U.S. agreement with the EU was announced.

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