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Brexit raises stakes for Britain in aircraft trade war

Published 10/03/2019, 02:51 PM
Updated 10/03/2019, 02:56 PM
Brexit raises stakes for Britain in aircraft trade war
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By Tim Hepher

LONDON (Reuters) - U.S. tariffs on European goods have plunged Britain into a trade war between the European Union and United States just as it plans to leave the 28-nation bloc, infuriating Scotch whisky makers and handing it a dilemma over thousands of Airbus (PA:AIR) jobs.

The United States has pledged tariffs on goods worth $7.5 billion a year in a dispute over Airbus subsidies from Oct. 18, days before Britain's planned end-October exit. And the EU is due to hit back in a parallel case concluding next spring.

Britain - which builds wings for Airbus jets and has been found to subsidize the jetmaker alongside France, Germany and Spain - said it was seeking confirmation from the WTO that it had obeyed its rulings and should not be subject to tariffs.

Barring a settlement or an end to seven years of argument over whether Europe has complied with earlier WTO findings - neither of which looks imminent, according to trade sources - tariffs could start to bite as Britain plans to leave the EU.

The timing rankles with some executives at firms in other industries hit by the new U.S. tariffs, compounding their frustration at having to pay for the misdeeds of plane giants.

"It throws up enormous uncertainty. With that realignment of allegiances going on, it is surprising that something as uniquely geographical as Scotch whisky is targeted by the Americans," said Edward Odim, managing director of Aceo Ltd, an independent Scotch whisky supplier.

"It is quite clear that Britain's position in the world is highly ambiguous at the moment. If we are going to be out of Europe, what is the purpose of it?" he said, adding the 25% tariffs would "really hurt."

Technically, the U.S. case against the EU over Airbus aid cites Britain and others as separate parties. But the spat is widely viewed as a confrontation between trade superpowers, Washington and Brussels, that could decide the WTO's future.

RETALIATE OR NEGOTIATE?

Britain faces an even starker dilemma next year when it must decide whether to join the EU in imposing counter-tariffs on U.S. goods over subsidies paid to Boeing Co (N:BA), trade experts said. The WTO says both sides have been at fault.

The WTO is expected to allow the EU to impose tariffs in around April at a time when Prime Minister Boris Johnson's government expects to negotiate a trade deal with Washington.

Trade sources say Britain could continue to support the EU over Airbus and punish U.S. imports at the risk of upsetting the post-Brexit trade talks with Washington. Or it could reject the offer to back Airbus with tariffs and upset a big employer.

The decision echoes a broader discomfort facing Britain as it chooses between European neighbors or the United States on a range of existing disagreements from access to contracts for Chinese telecoms equipment giant Huawei Technologies Co Ltd [HWT.UL] to the fate of a nuclear deal with Iran.

The Scottish government said U.S. tariffs on goods like whisky indicated the United Kingdom could not offset damage from Brexit by doing a trade deal with U.S. President Donald Trump.

But Brexit supporters insist the aircraft row is what Britain needs to find a voice on trade and boost its membership of the WTO, where EU states are mainly represented by Brussels.

"It's another great reason for us to leave the EU and take a seat back at the WTO so we can shape events," said Richard Tice, a businessman and European parliamentarian for the Brexit Party.

The UK government had no comment on how Britain would handle the aircraft dispute after Brexit, but said a tariff war would be in nobody's interest.

Drawing back from imposing tariffs on the United States after 15 years of trench warfare with Boeing at the WTO would upset Airbus which has threatened to review long-term UK investments after Brexit, several industry sources said.

Germany, Spain and non-EU Korea, Japan and even the United States are potential rivals for future wing work in the 2030s -the basic technology for which is already under development.

Airbus, which has 14,000 jobs in Britain, declined comment.

"Britain won't refuse to support its European partners in Airbus and will stay firmly together," predicted aerospace analyst Howard Wheeldon. "The UK government has too much to lose as Airbus is a key investor."

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