UK tariff decision plunges Airbus into new trade dispute

PARIS/LONDON: Britain's decision to suspend tariffs on Boeing jets and other US goods has stunned the planemaker's European rival Airbus and exposes a growing rift between the UK and Europe over aerospace investment, industry sources and analysts said.

Britain said on Tuesday it would suspend the tariffs on Jan. 1, describing the move as an attempt to de-escalate a long-running conflict over aircraft subsidies that has dragged the United States and Europe into a tit-for-tat tariff war.

The decision comes amid wider trade talks between Britain and the United States and ends a united front on tariffs between Airbus's political backers Britain, France, Germany and Spain.

Airbus played down the move, saying the company's goal remains "to find a negotiated settlement of this long-standing dispute to avoid lose-lose tariffs."

Diplomats say US and EU trade chiefs are in "serious" negotiations to end the 16-year-old aircraft trade row.

Privately, several European trade sources said the surprise UK move risked the most serious cross-Channel split on aerospace in decades. Two of the sources said it was viewed in other capitals as a "betrayal" of Airbus, which has 14,000 UK staff.

Paul Everitt, head of UK aerospace lobby group ADS, said Britain had acted unilaterally without reciprocal US action.

The subsidy dispute is the largest case ever handled by the World Trade Organization and comes to a head just as Britain is leaving the European Union, forcing it to seek new trade deals.

"There have always been disagreements, but this is the first time that statecraft has been put so clearly before shareholder trust," said a senior UK industry official.

Airbus' biggest shareholders include France, Germany and Spain. Britain is not a shareholder but hosts virtually all Airbus wing production and makes its voice heard indirectly.

Several sources said the move would reinforce studies by Airbus to re-examine where to build wings for future jets.

"It is really damaging and means the UK can forget about further investment," the senior industry official said.

"SERIOUS" TALKS

The decision follows a debate about whether Britain can legally impose tariffs inherited from the EU after Jan. 1 because of its technical status in the WTO case. Legal experts have said it could do so under rules of state succession.

Britain insisted the move would help resolve the subsidy spat, which has hit other industries forced to pay tariffs.

"We are serious about de-escalation ... this (suspension of tariffs) demonstrates the seriousness we place on reaching a negotiated settlement," a UK spokesman said on Wednesday.

Several sources said an aircraft agreement could be reached before US President Donald Trump leaves office next month.

Even though the United States is likely to welcome Britain dropping tariffs, reaching a deal may be complicated by the fact that Airbus jets are built across European borders.

"It is not clear how you resolve the UK part without addressing the rest of Europe," a US source said. "The entire discussion has been structured around finding a whole solution".

The US Trade Representative's office declined comment.

Airbus has most plants in France, Germany, Britain and Spain. So far jets assembled at a plant in Alabama are exempt from US tariffs, which are due to be reviewed in January.

Barring an agreement, one option on the table is to widen the tariffs to cover parts coming from Europe to Alabama, narrowing access to the US market, two sources said.