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A Boeing 737 Max aircraft taxis after landing at Vancouver International Airport on Sept. 8, 2020.

DARRYL DYCK/The Globe and Mail

The European Union on Tuesday won the right to impose tariffs on US$4-billion of U.S. goods in retaliation against subsidies for planemaker Boeing Co., deepening a record trade spat that has already prompted Washington to slap duties on EU imports.

The World Trade Organization (WTO) tariff award, which confirms a decision first reported by Reuters on Sept 30, threatens to intensify transatlantic trade tensions just three weeks ahead of the U.S. presidential election.

However, negotiators on both sides say it could also lead at last to discussions to resolve a 16-year legal battle over subsidies to aircraft manufacturers Boeing and Airbus.

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Both the United States and the EU have signalled interest in settling the dispute over plane-maker subsidies, while accusing the other of refusing to talk seriously.

Tuesday’s decision, delayed by the COVID-19 pandemic, follows a WTO ruling last year allowing Washington to impose tariffs on US$7.5-billion in EU goods over state support for Airbus, which has sites in Britain, France, Germany and Spain.

Combined, the two cases represent the world’s largest ever corporate trade dispute.

Consuming thousands of pages of testimony and an estimated US$100-million in costs since 2004, the aircraft spat has tested the resolve of the WTO, which is busy selecting a new leader.

The state of Washington has since repealed an aerospace tax break that benefited Boeing, while Airbus has announced it will increase loan repayments for the A350 plane to France and Spain in bids to settle the matter.

Boeing shares fell 2 per cent.

The U.S. government said there was no legal basis for the European Union to impose tariffs since the contested measure had been eliminated, a view echoed by Boeing, which said it had already complied with WTO findings.

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The EU says the same is true of U.S. tariffs imposed against subsidies to the A380 plane which is being taken out of production.

U.S. Trade Representative Robert Lighthizer said any move by the EU to slap tariffs on $4 billion of U.S. airplanes and other goods would be “plainly contrary to WTO principles and will force a U.S. response.”

Airbus, which also says it has obeyed WTO rulings, said global trade judges had “spoken” and that the EU could therefore impose tariffs, while calling for an agreed solution.

The European Commission said it would pull back from imposing duties if Washington withdrew its tariffs on European goods such as wine and whisky. The two sides could then work together to find common ground.

The spirits industry on both sides of Atlantic urged restraint and an end to tariffs. EU producers have already been hit and U.S. makers are in EU cross hairs.

RYANAIR LEVERAGE

The Commission has drawn up a list of U.S. products it could target including planes, wine, spirits, suitcases, tractors, frozen fish, and produce from dried onions to cherries.

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The earliest it could act is after a WTO meeting on Oct 26, but few analysts expect it to do so before the U.S. election.

The US$4-billion tariff window means European airlines that import Boeing jets could have to pay tariffs expected to match U.S. border taxes on Europe-built Airbus jets, currently 15 per cent.

But Boeing’s top European customer Ryanair has called on Boeing to pay the tariffs and is expected to use this as leverage in negotiations to buy more of its grounded 737 Max.

On top of Tuesday’s US$4-billion, European sources have said the EU could also use dormant tariffs on a further US$4-billion of U.S. products left over from an earlier case, giving it firepower similar to that which Washington is able to use.

Dismissing this, U.S. sources say the previous award, allowing the EU to retaliate against former perks for U.S. exporters, is no longer valid and that the balance of awards demonstrates Airbus is more to blame for distorting trade.

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