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Trade Update (October 7)

Oct 7, 2019 | SHARE  

U.S. Awarded $7.5B by WTO in Boeing-Airbus Dispute

On Wednesday (Oct. 2), the World Trade Organization (WTO) ruled the U.S. can issue punitive tariffs on roughly $7.5 billion of goods from the European Union (EU). The award, the largest-ever award issued by the trade body, stems from a Section 301 investigation “EU Large Civil Aircraft” from the nearly 15-year-long dispute between aerospace rivals Boeing and Airbus. The WTO authorized the Trump administration to impose duties after it was decided that the EU failed to completely end illegal loan subsidy programs for Airbus. However, the EU argues it has taken meaningful steps to comply and expects the WTO to validate that in a separate ruling.[1] “For years, Europe has been providing massive subsidies to Airbus that have seriously injured the U.S. aerospace industry and our workers,” said United States Trade Representative (USTR) Robert Lighthizer in a press release. “We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.” USTR will impose a 10 percent tariff on Airbus aircraft and a 25 percent duty on various European industrial and agricultural goods, including French wines, sweaters, coffee, various tools, olives, pork, fine cheeses, and more.  The European Commission is considering options to retaliate quickly by looking at prior WTO cases where it has already been granted the imposition of tariffs, leading to a much-feared “tit-for-tat” between both sides of the Atlantic. However, the commission hopes negotiations will prevail rather than spark an all-out trade war. “We regret that the U.S. appears to have taken the decision to impose additional tariffs,” Daniel Rosario, a trade spokesman for the European Commission, said on Thursday. A negotiated solution, he added, “still is, our preferred approach to this problem.” The U.S. made a strategic decision to swiftly apply tariffs: A WTO award ruling next year will enable EU countermeasures over illegal subsidies the WTO found were made to Airbus rival Boeing Co. After unveiling tariffs that will squeeze Airbus and sensitive European industries led by agriculture, U.S. officials said they are ready for talks.[2] According to one official, the short-term pain of these tariffs is preferable to any auto-related tariffs, which the U.S. could impose by Nov. 13. To view USTR’s list in its entirety, click here.


Lumber Industry Hit Hard by Section 301 Tariffs

U.S. lumber exports to China have drastically reduced due to the Trump administration’s 25 percent tariff. Annually, China accounted for roughly $2 billion in U.S. hardwood lumber exports. In the 12 months since tariffs on U.S. hardwood were announced in July 2018, lumber exports to China were down $615 million compared with the previous year, according to the American Hardwood Export Council. In June 2019, when the full tariff rate went into effect, trade volume to China was half what it was a year ago. Hardwood, which is used for flooring, furniture, and cabinets, took a further hit this week when the Department of Commerce set preliminary anti-dumping (AD) duties ranging from 4.49 percent to 262.18 percent on imports of kitchen cabinets from China. According to the fact sheet released by Commerce, “AD law provides U.S. businesses and workers with a transparent, quasi-judicial, and internationally accepted mechanism to seek relief from the market distorting effects caused by injurious dumping of imports into the United States, establishing an opportunity to compete on a level playing field.” U.S. retailers and distributors imported $4.4 billion worth of wooden products in 2018. The case was brought last year by a group of manufacturers calling themselves the American Kitchen Cabinet Alliance.[3] Commerce is scheduled to announce its final determination on or about February 17, 2020, according to the fact sheet. 


China, U.S. Plan Next Round of Talks

Lighthizer will meet with his Chinese counterpart, Vice Premier Liu He, on Oct. 10-11 in Washington, DC, in the latest round of talks between the two countries. Lighthizer will be joined by Treasury Secretary Steve Mnuchin. CHCG will recap the talks in next week’s Trade Update.


USMCA: Slowly, but Surely?

House Ways and Means Chairman Richard Neal (D-MA), the lead Democrat for the group negotiating the USMCA, will lead a congressional delegation (CODEL) to Mexico next week to meet with officials regarding the United States-Mexico-Canada Agreement (USMCA). Neal and other lawmakers will meet with Mexican President Andrés Manuel López Obrador, as Mexico’s 2020 budget and the money allotted for labor enforcement in USMCA will likely be the primary focus of conversation. House Democrats continue to seek various changes in provisions related to labor standards, environmental enforcement, and drug pricing provisions. As the impeachment inquiry into President Trump continues, House Speaker Nancy Pelosi (D-CA) has made it clear that the investigation will not affect USMCA’s chance of passage. Pelosi continued to reinforce that House Democrats are awaiting enforceability language from the administration. Lawmakers sent counter proposals to Lighthizer’s team last week. “At some point, I’m just saying, it’s either yes or no: We either have enforceability or we don’t,” Pelosi said.


References

[1] Palmer, Doug. Hanke, Jakob. “Cheese, French wines, planes on Trump target list for $7.5B retaliation award. Politico Pro. 2 Oct. 2019.https://subscriber.politicopro.com/article/2019/10/trump-set-to-hit-eu-with-tariffs-on-75b-of-goods-after-airbus-ruling-1781713

[2] Peker, Emre. “EU pledges restraint as U.S. moves to add tariffs.” The Wall Street Journal. 3 Oct. 2019. https://www.wsj.com/articles/eu-pledges-restraint-as-u-s-moves-to-add-tariffs-11570130666?mod=searchresults&page=1&pos=2

[3] Palmer, Doug. “Commerce sets some triple-digit duties on Chinese cabinets.” Politico Pro. 3 Oct. 2019. https://subscriber.politicopro.com/article/2019/10/commerce-sets-some-triple-digit-duties-on-chinese-cabinets-3955401

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