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EU given green light to hit US with tariffs in Airbus-Boeing ruling

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The EU has been handed the right to hit almost $4bn of US goods with punitive tariffs in retaliation for illegal state aid to Boeing, prompting renewed calls from both sides for a settlement to the 16-year aircraft dispute.

The World Trade Organization announced the decision on Tuesday. The EU will now have to decide when to put the tariffs into practice. 

The retaliation rights of $3.99bn are less than the $7.5bn the US received in a parallel case last year against Airbus, and also less than the $8.58bn requested by the EU.

But Brussels has identified a wide range of US products that it could hit, including aircraft, fitness machines and blueberries. 

Valdis Dombrovskis, the EU trade commissioner, said the long-awaited decision should be the cue for the two sides to come together and agree subsidy rules for the airline sector.

“Our strong preference is for a negotiated settlement. Otherwise, we will be forced to defend our interests and respond in a proportionate way,” he added.

The transatlantic dispute over aircraft subsidies is one of the longest-running pieces of litigation in the WTO’s history, and reflects the economic importance and competitive pressure felt by manufacturers on both sides of the Atlantic.

The battle dates back to 2004, the year after Airbus overtook its US rival in terms of deliveries for the first time. After brokering an agreement with the EU on state aid in 1992, the US launched a case against subsidies to the European aerospace group dating back to the 1970s, initially claiming that $22bn in illegal funding had been given to Airbus.

The EU followed up a few months later with a challenge of its own, originally claiming $23bn in illegal aid was offered to Boeing.

Brussels has been urging a settlement for months, as EU policymakers have grown increasingly exasperated by the time lag between a WTO decision last year on US rights to apply extra tariffs against EU products over Airbus and today’s announcement on Boeing. 

An Airbus A350 at Airbus headquarters in Toulouse, France © Regis Duvignau/Reuters

In that time, the US has applied punitive tariffs to products ranging from French wine to Italian cheese, while the EU has not been able to unleash similar measures in return. 

In response to the ruling from the WTO, the US trade representative’s office argued that the EU had “no legal basis” for imposing the tariffs as the subsidies in question were no longer being granted. USTR threatened to retaliate if the EU levied the tariffs.

Robert Lighthizer, the US trade representative, said the US remained “determined to find a resolution to this dispute that addresses the massive subsidies European governments have provided to Airbus and the harm to US aerospace workers and businesses”.

He added: “We are waiting for a response from the EU to a recent US proposal and will intensify our ongoing negotiations with the EU to restore fair competition and a level playing field to this sector.”

One of the key decisions for Mr Dombrovskis, who was confirmed in office only last week, will be whether any tariffs should kick in before the US election on November 3.

The EU trade commissioner said he “would much prefer” not to apply the tariffs against US goods, as “additional duties are not in the economic interest of either side”.

The EU still needs to request authorisation from the WTO to put the additional tariffs into practice — essentially a formality — something it could do at a meeting of the dispute-settlement body scheduled for October 26.

The EU’s right to hit US products is based on WTO findings against aid granted to Boeing by Washington state — advantages that the aircraft maker and the US government insist have now been withdrawn. 

Officials at Airbus and Boeing told the FT they were keen to see a settlement in a dispute that had become a costly distraction at a time when aircraft manufacturers were battling the devastation to their market from Covid-19. They also face a potential competitive threat from Chinese manufacturing, with Beijing aiming to bring its C919 single aisle into service next year.

“Rather than escalating this matter with threats to US businesses and their European customers, Airbus and the EU should be focusing their energies on good-faith efforts to resolve this long-running dispute,” Boeing said.

Attention in the US has been focused on the fact that the EU retaliatory tariffs include aircraft. These punitive duties would come at a critical time for Boeing as the company wants to have its 737 Max recertified following deadly crashes and a safety investigation. 

Guillaume Faury, Airbus’s chief executive, said the company was “prepared and ready to support a negotiation process that leads to a fair settlement . . . it is time to find a solution now so that tariffs can be removed on both sides of the Atlantic”.



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Bullying Russia yearns to be treated as a great power

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The writer is the author of ‘Putin’s Russia’ and a member of the Liberal Mission Foundation

At their Conference on the Future of Europe, which opened on May 9, EU leaders invited citizens to “join the debate” on the path ahead. In Washington, President Joe Biden has called for “togetherness” as he announces ambitious plans to transform the US economy and society. For the west, the way to deal with crises is to build images of a better, shared future.

By contrast, Russia is turning to the past in its search for unity. At a Red Square military parade, also held on May 9, President Vladimir Putin asserted that the Soviet people had fought “alone” on their road to victory over fascism in the second world war. In this way, he confirmed that Russia and the west are on opposite trajectories.

Putin’s emphasis on his nation’s past achievements could secure stability in Russia for a while. His rule benefits from the fact that the Kremlin today faces no serious internal or foreign threats. Why, then, is Putin acting like some geopolitical Alfred Hitchcock and creating suspense in international relations, forcing western leaders to play “who blinks first”?

As Russia’s chief decision maker, Putin’s personal moods obviously matter. However, more important is the logic of the Russian system of power, with its demand for recognition on the world stage of the nation’s great power status. According to this logic, Russia cannot be ignored and must be a member of the global concert of powers. It believes macho bullying is the entry ticket to the concert.

Despite the crackdown on domestic dissent and the anti-western rhetoric of state propaganda, the Kremlin’s policies are aimed at preventing Russia from turning into a sealed-off fortress. For in order to be a great power, Russia has to sit at the same table as its peers. To satisfy its global aspirations and conform with the logic of its domestic power arrangements, Russia has to be simultaneously with the west and against it.

In a sense, Putin is getting what he wants. Biden has suggested holding a US-Russian summit, and EU leaders are trying to keep open lines of dialogue with Moscow despite low levels of mutual trust. However, if western governments hope to find a modus vivendi with Russia, they may be disappointed.

For the price that the Kremlin is willing to pay for the risks its policies are incurring is higher than the costs that the west is ready to impose on Russia for causing disruption. In effect, the west is pursuing a dual-track policy towards Russia of containment and co-operation. In recent times, however, this policy has run into the problem that co-operation stalls every time the west feels a need to deter Russia. If they want their approach to work, western countries will have to do a better job of compartmentalising the two tracks.

There are important differences with the cold war era of Soviet-western confrontation. In those decades, the Soviet Union unintentionally consolidated western unity by behaving in ways that strengthened the west’s commitment to principles of liberal democracy and the rule of law. Nowadays, post-Soviet Russia undermines the west by mimicking its liberal principles and getting “inside” western societies through its political and economic elites, business operations and powerful lobbying machines.

Partly for these reasons, the west finds it hard to set clearly defined “price tags” for what it deems unacceptable Russian behaviour. The Kremlin’s recent military build-up on Ukraine’s borders was evidently no red line for the EU. Yet to accommodate Moscow simply encourages its assertiveness.

Nevertheless, a bitter irony may lie in store for Russia. Putin’s international bullying beefs up his image as a strong leader at home. Yet the Kremlin’s continual testing of western patience serves to undermine Russia in more subtle ways.

After the Soviet Union’s collapse, Moscow learnt to use the west as an economic and technological resource. The Russian elite made the west its home. But to preserve the west as a resource, Russia needs the trust of western partners. Instead, the Kremlin’s Hitchcock-style games of suspense provoke western suspicions and an instinct to fall back on deterrence.

There is a potential trap for the west, too. Its dual-track policy helps Russia’s power structures, as they have evolved under Putin, to limp on. The Kremlin and its agencies engage in international behaviour that the west finds disagreeable. But the west can hardly try to undermine them without running the risk that Russia would plunge into instability. Is the west really prepared for the huge uncertainties of a world in which the existing power structures in Moscow unravel before any domestic alternative is available to take their place?



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PiS unveils ‘Polish Deal’ to lift economy

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Poland’s conservative-nationalist government has set out plans to boost health spending and cut income tax, as part of a sweeping programme designed to bolster the economy in the wake of the pandemic.

The so-called Polish Deal, which will include support for housebuyers, pensioners and families, as well as tax cuts for low and middle-earners, is widely regarded as an effort by the ruling Law and Justice party (PiS) to set out its stall ahead of parliamentary elections due at the latest in 2023.

Like most countries in the EU, Poland has been ravaged by Covid-19, with the pandemic claiming more than 70,000 lives and tipping the economy into recession for the first time in three decades.

Prime minister Mateusz Morawiecki said the Polish Deal — which will be buttressed by loans and grants from the EU’s recovery fund — was a chance to fulfil Poles’ dreams of catching up with richer countries in western Europe, as well as to expand the country’s middle class.

“We have a huge opportunity in front of us,” he said. “[In the past] we always had to worry about freedom from external oppression. But today, we can care about the freedom to decide about the rules of social and economic growth on our own sovereign Polish conditions.”

As part of the changes announced on Saturday, PiS and its two smaller allies plan to boost spending on the underfunded health system, parts of which have been overwhelmed by the pandemic, from 5 per cent of GDP in 2020 to more than 7 per cent in 2030.

The tax system will also be rejigged. The income-tax-free allowance will rise to 30,000 zloty, and the threshold at which Poles start paying the higher 32 per cent rate of tax will rise from 85,000 to 120,000 zloty per year.

Mortgage rules will also be revamped and guarantees will be provided to make it easier for the young to buy property, while the rules around building permits will be relaxed. There will also be further benefits for families with young children, and pensioners, as well as a programme of investments that PiS claimed would create 500,000 new jobs.

Morawiecki and his fellow speakers at the congress of the ruling camp gave few details on financing for the tax cuts.

Jaroslaw Gowin, deputy prime minister and head of Agreement, one of PiS’s two junior coalition partners, conceded richer Poles would have to pay more taxes, but did not go into detail. He also said the state budget would be hit.

Poland’s finance minister Tadeusz Koscinski told the FT that the tax cuts would partly be funded by faster growth. However, he added that the fiscal shortfall would also be partly covered by higher social security payments from workers and business, resulting from changes that would push more workers from self-employment to full employment contracts, and from the removal of a cap on social security payments for the self-employed.

Koscinski said the annual net cost to the state budget of the tax cuts would be about 7bn zloty. He added that there would be a further 3bn zloty in subsidies to co-finance investments by local governments that had lost revenue as a result of the tax changes.

Adam Czerniak, an economist at Polityka Insight, said the government’s assumptions about faster growth helping to cover the cost of the government’s plans were “optimistic, but I think they can happen”.

However, he expressed concern that the changes around housing — which include state guarantees on home loans for young borrowers — could cause a booming market to overheat.

“Guarantees on down payments are very risky at this point in the business cycle in the housing market,” he said.



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Gastronomes look beyond pandemic to a revolution in French fine-dining

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Chef Yannick Alléno used to serve a €395 menu featuring langoustines and foie gras at his three-starred Michelin restaurant near the Champs-Elysées.

But as France prepares to allow restaurants to reopen for outdoor service next week after six months of closure, he will instead be serving up burgers at his wine bar for a fraction of the price. 

That a superstar chef such as Alléno, whose stable of high-end restaurants from Courchevel to Marrakesh hold more than a dozen Michelin stars, is changing strategy underscores the difficulties facing France’s grands restaurants as they seek to recover from the ravages of the coronavirus pandemic

“We have to inspire people to come here by sparking their curiosity,” he said of the Pavillon Ledoyen, the neoclassical building that houses several of his restaurants, including the three-starred Alléno Paris.

Such temples to French gastronomy have long catered to wealthy foreign tourists, who will happily pay more than €1,000 for a meal for two as long as they experience l’art de vivre à la française. But with international travel severely curtailed by the pandemic, such customers are not expected back for some time. 

Chef Yannick Alléno
Yannick Alléno operates high-end restaurants from Paris to Courchevel and Marrakesh that hold a dozen Michelin stars combined © Francois Durand/Getty

Attracting locals is the new challenge, as well as retaining employees, many of whom have left the sector and its notoriously challenging working conditions. Many restaurants are also saddled with large debts after taking state-guaranteed loans to ride out the crisis.

“I have three years of struggle ahead,” said Alléno, adding that half the group’s €4m in cash reserves had been spent. “For three-star restaurants, there will be many casualties.” 

His flagship restaurant used to generate more than three-quarters of revenue from foreign diners, mostly from Asia and the US. As there is little point reopening without them, the doors will remain shut until September. Alléno will for now experiment in the less-formal location as he plots an overhaul that seeks to drag fine-dining into the 21st century.

“Everything must change,” he said, quoting the title of the book he co-wrote during lockdown. In it, he called for a revamp of everything from the style of service (warmer, more personalised) to staffing (more flexible and family-friendly).

French haute gastronomie traces its roots back to visionary 19th-century chefs such as Auguste Escoffier and Marie-Antoine Carême, who created a cuisine based on rich sauces and meticulous — often theatrical — service. For decades it was considered the world’s best and became a key part of French identity.

But its popularity has faded in recent decades thanks to competition first from the flashiness of molecular gastronomy and then the pared-back Nordic style. As French haute cuisine lost ground, it became much more expensive, putting it out of the reach of many.

“The pandemic has exposed that the business model of high-end restaurants in France simply doesn’t function without tourists,” said Joerg Zipprick, co-founder of La Liste group, which ranks the world’s best restaurants.

“This is a relatively new development. It used to be that . . . a local doctor or manager would come to these places to celebrate a special occasion. No longer.”

Zipprick said that for the top chefs, many of whom had spent the past year experimenting with takeouts and meal kits, success depended on their willingness to adapt.

A customer picks up his order from Baieta in Paris
Baieta restaurant in Paris. Many top chefs have experimented with takeouts and meal kits during the past year © Franck Fife/Getty

Diners would not want fussy and experimental dishes on their return, he predicted, but would instead want to eat good food at a nice restaurant in the company of friends and family.

“No more technical stuff or food that requires a long explanation from the waiter about the fermentation process. People don’t want their meal to be a work of art,” Zipprick said.

The last time French cuisine reinvented itself was in the 1970s when chefs such as Paul Bocuse and the Troisgros brothers created nouvelle cuisine. The movement, less opulent and calorific than the fine-dining that preceded it, put fresh and high-quality ingredients to the fore and service became less formal. 

Alléno believes top restaurants must aim to tailor experiences by talking to clients beforehand about the occasion for their dinner, the guests and their tastes.

This “concierge service” approach would allow menus to be better planned, improving the customer experience and the economics for the restaurant.

“If I know I only have three people who’ll eat langoustine on a given night then I don’t need to order six kilos just in case,” he said. “It really changes things for the kitchen.” 

Others are being even more radical. Daniel Humm’s three-starred Eleven Madison Park in New York will no longer serve meat and seafood when it reopens next month, as the Swiss chef seeks to show that sustainable and environmentally conscious eating can be compatible with luxury.

However, Éric Fréchon, the three-Michelin-starred chef behind restaurant Epicure at the five-star Le Bristol Paris hotel, played down expectations of radical change.

“Things will return much as they were before,” Fréchon said, noting that the hotel’s restaurants had a significant local client base. “People have missed the experience of haute gastronomie for so long they’ll be eager to come back.”

Fréchon said he would retain some coronavirus-era innovations, including the €1,390 “gastronomy and to bed” package that is marketed as a one-night staycation for locals that includes dinner in their suite or hotel room.

“For New Year’s Eve we had 60 servers running back and forth to rooms, it was really difficult,” he said. “But it allowed us to reach new clients who perhaps would not have dared to come to a three-star restaurant. Now we have to keep them.”

Additional reporting by Domitille Alain in Paris



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