The US and EU aerospace rivals unite to protect tariff-free aircraft export

The United States and European Union have reached a provisional agreement to exempt planes from tariffs. This will avoid a possible threat to jet production in both regions, and cap months of unusual unity among rival plane makers. Officials in Europe said that the framework agreement, announced on sunday, would see the U.S. impose an import tariff of 15% on most EU products, but protect industries such as aerospace with zero-forzero tariffs for aircraft and parts. After intense lobbying it spares a sector that is often the lightning rod of trade tensions. The World Trade Organization was tested to its limit by a 17 year dispute over Airbus or Boeing subsidies, before a truce came in 2021.

The threat of U.S. Tariffs, which would have compounded the supply chain issues, had led to a potential increase in costs for aircraft, engines, spare parts and components, from landing gear to seat.

There are still questions about the details of the agreement and whether they will include other components such as space.

One European industry official said, "We just wait until we see these written down."

Airbus confirmed that it has taken note of this deal.

It said that "a stable and predictable trading environment is essential for the highly integrated global aerospace industries."

Boeing has not yet commented on the matter.

UNITED CAMPAIGN

The agreement reached on Sunday follows a discrete and unusually united campaign aimed at reverting to the landmark 1979 agreement that mandated duty free trading of civil aircraft between more than 30 nations.

Airbus and Boeing were involved in a trade dispute over subsidies that had splintered the industry only a few short years ago. Now, both sides of Atlantic are working together.

Sources say that two terms in the previous handbook of the industry have been quietly dropped: WTO and multilateral.

The 1979 Agreement on Trade in Civil Aircraft, which eliminated tariffs on parts and aircraft, is one of the few industry-specific agreements that survived an earlier round when the World Trade Organization was opened in 1995.

U.S. president Donald Trump, who called the WTO the "single worst trade deal ever made," seems to prefer bilateral agreements over broad alliances, from trade to security. "Multilateralism" has been one of the most vehement criticisms of America First's philosophy.

All sides were active in lobbying, but sources within the industry highlighted a discrete but influential role that GE Aerospace CEO Larry Culp played.

Culp said in April that he advocated the re-establishment of the tariff-free régime for the aerospace sector during a meeting at the White House with Trump.

He stressed that the administration "understands" the position, and that the zero-duty system had helped the U.S. Aerospace industry achieve a $75 billion trade surplus each year.

Officials from the aerospace industry also claimed that there was a strong interconnection between Boeing and its European rival Airbus. Tariffs in the U.S. would hurt all of us, they said.

GE had no immediate comment to make on the new agreement.

In May, Trump and Britain reached a trading agreement that restored duty-free jet engine trade.

Talking Templates

Aerospace industry officials have urged the White House, following the US-UK deal, to use the template as a guide for future trade negotiations. GE's Culp, and Delta Air Lines CEO Ed Bastian, both referred to the deal as a model.

The agreement does not restore the entire 1979 agreement, but instead focuses on just the largest aerospace markets.

Boeing delivers around 17% of its aircraft to Europe, while Airbus ships about 12% of its jets, with some being assembled locally, to the United States.

According to the French industry lobby Gifas, Europe and the U.S. each have their largest markets for aircraft parts.

The agreement has relieved one major source of pressure. However, Boeing, Airbus, and their suppliers may still find themselves caught in the trade tensions between Washington, D.C., and China as they try to do business with them.

Aerospace companies also await the results of an ongoing U.S. investigation into trade in aerospace.

In May, the U.S. Commerce Department began a national security investigation under "Section 224" into the imports of aircraft, jet engines, and parts for commercial aircraft that could be the basis for tariffs, quotas, or both.

U.S. Airlines who met with the Department say that much of their focus was on China, and the potential disruption of key supplies such as rare earths and magnetic materials.

Embraer's regional jets are the only ones that have alternatives.

Embraer estimates that tariffs of 50% on the importation of these jets could add $9,000,000 per plane to the cost for U.S. carriers. Alaska Air announced last week that it may delay some deliveries. (Writing and editing by Bernadettebaum, Tim Hepher)

(source: Reuters)