Thread by @CoppetainPU

Some clarification of how the retaliation (officially “countermeasures”) works.

It's what I thought but I couldn't find it spelt out in writing.

Recap: this is about action WTO members have authorised the US to take against the EU because of illegal subsidies for Airbus.

1/15

https://twitter.com/CoppetainPU/status/1179523490787004422

The US has been authorised to retaliate against the EU (including the UK) to an amount of up to $7.5bn.

What does that mean?

As explained to me:

2/15

1. The $7.5bn comes from a very complex calculation of the trade lost (and “impeded”) by subsidies given directly or indirectly to Airbus.

The calculation is very complex and controversial, but I won’t go into that.

This is about the retaliation based on that figure.

3/15

2. The $7.5bn is NOT the tariff revenue collected. This was clear from the start. If the tariff was so high that there would be no trade in the products on the list, then the tariff revenue would be zero.

4/15

Theoretically prohibitive tariffs could be imposed on everything the EU exported to the US and still the tariff revenue collected would be zero and $7.5bn would never be reached.

So clearly this is not about the duty collected.

5/15

3. This is about matching the loss of trade.

The (controversial) calculation was that the US lost $7.5bn-worth of trade, through lost or impeded sales of Boeing aircraft, because of EU subsidies given directly or indirectly to Airbus.

6/15

To put it crudely, the punishment cannot exceed the crime.

Therefore the US is deemed to be entitled to raise trade barriers against EU exports in a way that causes the EU to lose up to, no more than, $7.5bn per year — the amount the US was calculated to have lost

7/15

4. If the tariffs were prohibitive — they simply blocked trade completely, such as tariffs of 1000% — then they could be imposed on $7.5bn-worth of annual trade.

There’d still be the question of whether trade in those products would’ve stayed at $7.5bn, but let’s ignore it

8/15

5. But here the added tariffs are 25%, and for aircraft and aircraft parts they are 10%. Depending on how purchasers adjust, including whether they switch to alternative products or sources (“elasticity” in economics jargon), trade could continue. But at a lower level

9/15

That means the US can impose the added tariffs on products whose exports from the EU to the US currently total MORE THAN $7.5bn.

It can do that so long as the EU’s exports of these products to the US do not FALL by more than $7.5bn

10/15

6. But what if the US miscalculated? What if it turns out that the EU lost more than $7.5bn in exports to the US.

The EU could challenge the US (again) in a WTO legal dispute. It would have to show that it was the added tariffs and not other factors that caused the damage

11/15

There are further complications but I'll leave it at that.

Reminders:

a. The $7.5bn authorised retaliation is annual, until the EU can show that it has complied with the original ruling and no longer uses illegal subsidies. Or until the US and EU reach a settlement deal.

12/15

A ruling on whether the EU has complied is due next year.

b. In a parallel dispute, the US has also been found to have subsidised Boeing illegally. The EU also has a retaliation list. A mirror-image ruling is due next year on how much the EU can retaliate against the US

13/15

c. These disputes go back decades. Retaliation is not part of a “Trump trade war”, but allowed under WTO agreements.

It’s designed so that countries can put pressure on each other to comply with the agreements they signed.

It has been used/available in a number of cases.

14/15

It’s the closest thing to “enforcement” that the WTO has without actually being able to enforce anything.

More info:

The “Airbus” dispute: wto.org/english/tratop…

The “Boeing” dispute: wto.org/english/tratop…

WTO dispute settlement: wto.org/english/tratop…

15/15