New Articles

US-EU Suspend Large Civil Aircraft Tariffs and Take Aim at China in Framework Addressing Non-Market Practices


US-EU Suspend Large Civil Aircraft Tariffs and Take Aim at China in Framework Addressing Non-Market Practices

The United States and European Union (“EU”) announced a “cooperative framework” to address and potentially resolve their long-running dispute over large civil aircraft subsidies, also commonly known as the BoeingAirbus or Large Civil Aircraft disputes. Originally initiated in 2004 when the U.S. filed a case at the World Trade Organization (“WTO”) against the EU alleging illegal subsidies to Airbus SE, the Large Civil Aircraft dispute is the longest running dispute at the WTO. As part of the new understanding, the U.S. and EU will suspend their respective WTO-authorized tariff countermeasures, which affected a total value of $11.5 billion in trade. The U.S.-EU’s announcement is a major step towards potentially resolving the 17-year transatlantic dispute over aircraft subsidies.

As previously reported, the initial duties occurred in October 2019 when the U.S. imposed 15 percent tariffs under Section 301 of the Trade Expansion Act of 1962 on imports of civil aircraft and aircraft parts (under the HTSUS codes 8802.40.0013, 8802.40.0015, 8802.40.0017, 8802.40.0019, and 8802.40.0021). A rate of 25 percent was adopted by the U.S. for all other listed EU-origin imports, covering agricultural products, spirits, and luxury goods among other products. The EU retaliated in November 2020 with tariffs on approximately $4 billion worth of U.S. imports, with matching rates of 15 percent for civil aircraft and aircraft parts and 25 percent for all other U.S.-origin imports, covering agricultural products and industrial and finished goods.

As part of the Understanding on a cooperative framework for Large Civil Aircraft, the US and EU expressed their intention to:

-Establish a Working Group on Large Civil Aircraft led by each side’s respective Minister responsible for Trade, which will meet every 6 months or on request,

-Provide financing to large civil aircraft producers only on market terms,

-Provide R&D funding through an open and transparent process and make the results of fully government-funded R&D widely available, to the extent permitted by law,

-Not to provide R&D funding as well as specific support (such as specific tax breaks) to their own producers that would harm the other side,

-Collaborate on addressing non-market practices of third parties that may harm their respective large civil aircraft industries,

-Continue to suspend application of their countermeasures, for a period of 5 years, avoiding billions of euros in duties for importers on both sides of the Atlantic.

According to statements made by U.S. Trade Representative (“USTR”) Katherine Tai, the tariffs would remain suspended as long as the terms of the agreement are upheld and while they work on addressing issues including outstanding subsidies already paid.

The U.S.-EU cooperative framework also includes an “Annex on Cooperation on Non-Market Economies” to “more effectively address the challenge posed by non-market economies” in the civil aircraft sector. These cooperative steps include coordinating and exploring information-sharing regarding cybersecurity and other concerns, screening of inward and outward investments, and “joint analysis of non-market practices,” especially China’s, in the large civil aircraft sector. USTR Tai described the agreement as “a model we can build on for other challenges” related to “the threat from China’s non-market practices.”


Emily Lyons is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

cargo ECS charter

Air Cargo Trends in a Pandemic World

Previous predications in pharmaceutical transportation trends, highlighting declining air passenger numbers and air freight demand increasing, have been pandemic propelled. Coronavirus continues causing worldwide disruption, as it is anticipated its industry impact will continue throughout 2021 and beyond.

Pandemic Response – Preighters Take Off

Pre-pandemic passenger numbers were already on the downturn, however, the COVID-19 crisis significantly accelerated that trend.

The crisis capacity crunch came as passenger flights plummeted and the ensuing scramble to transport pandemic payloads saw the deployment of hundreds of passenger planes as freighters, known as preighters, take off.

Pioneering Portuguese charter operator Hi Fly led this trend and was the first to convert an A380 for freight, taking out the majority of seats to provide more cargo capacity.

Despite the sector seeing the grounding of hundreds of passenger planes, earlier than had been initially forecast, which led to a reduction in the availability of cargo space in the bellies of these passenger aircraft, we’ve seen more planes undergo conversions to freighters.

The preighters prevalence looks set to continue throughout 2021 and beyond. Although the air cargo industry faces continuing challenges, IATA predicts an anticipated 25% rise in freight tonne-kilometers this year.

Boeing projects growth in the global freighter fleet with the number of cargo aircraft in service forecast to increase more than 60% over the next two decades, resulting in 3,260 operational aircraft by 2039. (1)

However, the ongoing drastic downturn in travel means the loss of a lot of capacity in passenger aircraft and while freighter aircraft are still present and working hard, fleet growth takes time, so there will be a slower response to replacing some of the capacity lost from the passenger side of the industry.

Some of the 747s which have comparatively low hours on their airframes will undoubtedly become 747 converted freighters and will be flying as freighters just to try to backfill some of that loss in capacity from the passenger numbers.

Large Widebody Aircraft – Grounded or Retired

Before COVID-19, it was predicted airlines would start cutting flights from schedules, mothball larger aircraft, decline production options, and look to utilize smaller, more efficient aircraft in the future for environmental and economical reasons. All of those decisions have been massively accelerated.

The forecast to park some of the larger, widebody aircraft has been brought forward significantly, due to the COVID-19 crisis.

The ongoing impact of the pandemic has meant the majority of all 747 freighter aircraft have or are being retired. The A380, which Airbus had previously announced it would stop deliveries of in 2021, has also been retired across the board by numerous airlines, except Emirates.

Increasingly airlines are globally grounding their A380s in favor of more modern, smaller jets, which can fly more efficiently than their four-engine aviation counterparts.

With far fewer passengers flying in a pandemic world, the travel downturn has ramped up decisions to park planes, some permanently, further impacting the already dwindling resource of global air freight capacity.

What we will continue to see is a lot more interest in leaner aircraft, like the A220, the Canadian Bombardier aircraft Airbus produced in North America.

Sea Change in Modes of Transport

There will be ongoing developments in the sea freight sector, which has an estimated 17 million TEUs (Twenty-foot Equivalent Unit) serviceable globally, of which six million containers are routinely turning and carrying freight.

Put in perspective, at its lowest level of trading during the onset of coronavirus, there were 135,000 TEUs a month traveling from China to the US. However during peak months, when the US retail sector’s stocking up for Thanksgiving and Christmas, this increases to 900,000 TEUs a month. This equates to 8% of the global free flow of sea containers just crossing the Pacific from China to the States.

Any delays will see a huge build-up of sea containers, which lead to availability issues, and rate rises, as seen during the pandemic when China stopped producing. What we saw with the initial emergence of COVID-19, China stopped producing, so wasn’t pushing out those sea containers so there were availability problems in the rest of the world because all the sea containers were piling up in China.

When China returned to approximately 98% of its production output in April other countries were then in lockdown, with some like the US, holding containers for two weeks in ports to quarantine them, compounded by shorthanded workforces operating in the docks.

As sea containers started to pile up in their markets and with exports to China impacted, shipping lines cut sailings from schedules, which saw sea freight prices spike by up to 50%.

Uncertainty in sea freight and air freight availability saw pharma companies initially ship everything they could, by any mode of transport available, to get it out to the markets.

Following months of disruption passenger airlines eventually started flying passenger aircraft with cargo in the lower decks and loose load cargo on the upper decks.

We are now back in the situation where that backhaul from the US and Europe, following seasonal shipments for Christmas retail demands, China now has availability issues again with reduced sailings, so there will not be any kind of normal flows until March 2021, at the very earliest.  However as the UK is currently back in another national lockdown, with all non-essential retail effectively closed and production affected, and if this trend spreads further into Europe and possibly the US, then that will further affect the backhaul. So whereas I was hoping things might be back to some kind of normality in March, I am now inclined to add another quarter to that. So, I now think there will be exacerbated sea freight and sea container availability issues throughout the first half of 2021.

Given the sea freight situation, we will continue to see the utilization of air freight to transport pandemic payloads. When it comes to economics, without the passengers on the main deck it is a much more expensive operational option, however pharma customers are prepared to pay those premiums to move their product.

The volumetric efficiency of air craft is critical at the moment because it is such a scarce resource we need to ensure the best use is made of it.  With air freight capacity a dwindling resource, it is even more important to have the very efficient packing density of temperature-controlled products on such limited air freight resources.

Vaccines vs. Virus – Rapid Response

As the development of successful COVID-19 vaccines continues at a rapid rate, the world’s first approved vaccines are already being administered as part of ongoing mass vaccination programs worldwide.

Temperature-controlled packaging manufacturers continue to play a pivotal part in the global deployment of these approved vital vaccines, including those developed by Pfizer/BioNTech, Oxford University/AstraZeneca, and Moderna.

As COVID-19 vaccines fall into different families of technology, some have frozen and deep-frozen temperature requirements, leading to a scramble to qualify existing solutions for shipping at those specific lower temperatures.

In a rapid response to the logistical cold chain challenges involved in the deployment of these potentially life-saving vaccines, we have adapted our shippers to meet those temperature requirements, as have other providers in the market.

There has been an impetus for innovation to support these temperatures in volume. Suppliers stepped up to meet the vaccine temperature requirements by adapting existing shipping solutions and the capacity is there, so I don’t anticipate it will be an issue going forward.

The focus is reverted back to the capacities in the transport modes and given the nature of these drugs people are paying whatever it costs to ship them, with rates rising sharply from $2.5 a kilo to $23; however, that’s starting to calm down.

Beyond all of the current vaccines being approved, there will be the need to provide boosters. It is going to create a recurring step up in the volume of vaccines being shipped, alongside the flu vaccines being transported and other pharmaceutical payloads every year.

There will not be a continuous crisis, it will be a continuing trend of smaller aircraft, with reduced airfreight capacities, moving that pharma product at temperatures that sea freight cannot do. It really can only fly.

However, there’s not going to be a modal shift from air to sea because sea cannot meet the temperature requirements necessary for these shipments. You get a displacement, whereby COVID-19 shipments, whether vaccines, test kits, and reagents or some of the therapies which help with recuperation, like Remdesivir, are flying at almost any cost on a dwindling resource.

The pharmaceuticals which have more normal temperature shipping requirements, like 2 – 8C degrees or 15 – 25C degrees, get displaced and in that situation, when the air freight rates get so high, sea freight would normally be seen as a shipping solution.

However, with all of the sea freight challenges, coupled with the fact that their transportation rates have also doubled, there has been some displacement but not as much as pharma companies would have liked, which is what has kept pushing the prices up in the region of the $23 a kilo figure for air freight we had seen previously in the market.

Sea freight will improve in the first six months of 2021 so some of that displacement can take place more efficiently. But aircraft will still be full of COVID-19 related products.

2021 will see the industry learning to operate in the new norm with everyone getting used to that new norm. Next year we might start to see some improvements and efficiencies but I think this year is about adjusting our planning, our capacities, and our operations around this spike in demand and the gradually improving capacity picture. Almost like wearing in a new pair of shoes.


Dominic Hyde is Vice President Crēdo™ On Demand at Pelican BioThermal


EU Imposes Tariffs on U.S. Following WTO Decision on Subsidies to Boeing

The European Union (EU) has imposed additional tariffs on approximately $4 billion worth of U.S. goods, after a World Trade Organization (WTO) decision last month authorized proportionate retaliation against the U.S. for its subsidies to Boeing.

According to the European Commission’s (EC) Implementing Regulation (“the Regulation”), published in the Official Journal of the European Union on November 9, 2020, negotiations with the U.S. to settle the dispute over subsidies to their respective aircraft industries “have so far not yielded results,” while the U.S. still maintains tariffs on approximately $7.5 billion worth of European goods as a result of a parallel WTO decision authorizing U.S. retaliation against the EU.

Effective upon the date of publication, the EC has adopted duty rates of 15% for civil aircraft and aircraft parts under the tariff codes 8802.40.0013, 8802.40.0015, 8802.40.0017, 8802.40.0019, and 8802.40.0021. A rate of 25% was adopted for all other listed U.S.-origin imports. The list of goods subject to 25% tariffs, with product descriptions, can be viewed here. The rates of 15% and 25% reflect the rates currently imposed by the U.S. on imports of EU-origin goods.

In U.S. Trade Representative Robert E. Lighthizer’s statement in response to the EU’s announcement of retaliatory tariffs, he expressed disappointment and noted that the main subsidy to Boeing—a Washington State Business & Occupation tax break—that was alleged at the WTO was repealed earlier this year.


Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Emily Lyons is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

The 737 MAX 8 is Safe, but International Civil Aviation Regulators Must Do More

Last Sunday’s fatal crash of Ethiopian Airlines Flight 302 outside Addis Ababa—the second accident involving a Boeing 737 MAX 8 in just five months—has sent shockwaves across the globe, with President Donald Trump announcing Wednesday that the United States is joining more than 40 other countries in grounding the MAX 8 and MAX 9 models until further notice.

Leading up to the White House’s emergency order, the FAA, Southwest Airlines and American Airlines had all expressed confidence in the MAX 8’s airworthiness despite growing concerns with the airplane’s Maneuvering Characteristics Augmentation System, or MCAS, a new software feature Boeing added to stabilize the reengined 737 during low-speed, nose-up flying conditions in which airplane could potentially stall.

While keeping MAX 8s out of the sky is an effective, albeit extreme, move by regulators to forestall further accidents until Boeing releases an update to the aircraft’s software next month, the unpopular truth is that the MCAS alone did not cause Ethiopian Airlines Flight 302 to crash—nor did it cause Lion Air Flight 610 to nosedive into the Java Sea last October.  Indeed, both flights would have landed safely if their respective civil aviation authorities had made sure that the airlines had adequately trained the pilots to handle standard emergency scenarios.

To be clear, neither of the two flights’ crews are to blame. In most countries around the world, commercial passenger airlines are regulated by civil aviation authorities that, like the FAA, are responsible for overseeing air transport operations and ensuring that airlines comply with worldwide aviation safety standards, such as those set forth by the United Nations’ International Civil Aviation Organization (ICAO).  Airlines are required to administer periodic proficiency checks to retrain pilots on the aircraft they fly and rehearse possible scenarios that could jeopardize safety in flight.  Ultimately, responsibility for seeing that air carriers conduct these checks—as well as for verifying that emergency industry and manufacturer bulletins are promptly incorporated into an airline’s training programs—rests with the civil aviation regulator of the country in which an airline is based.

For example, following the Lion Air accident last October, Boeing issued a worldwide Operations Manual Bulletin telling its MAX 8 customers how to override a “runaway stabilizer” and recover the aircraft from an MCAS-induced nosedive. The next day, the FAA directed U.S. airlines to revise their airplane flight manuals to include this procedure and train their flight crews to override the MCAS by setting the flight controls’ STAB TRIM switches to CUTOUT and manually flying the aircraft for the remainder of the flight.

Likewise, the Ethiopian Civil Aviation Authority should have confirmed that its country’s airlines also trained their pilots on the recovery procedure. It has been reported that Ethiopian Airlines did train its pilots on Boeing’s bulletin in the wake of the Lion Air crash; but the degree to which the regulator was involved in confirming that the training was effectively administered remains unclear. Pilot training oversight continues to be one of the most common areas in need of improvement by foreign civil aviation authorities.

While it is still too early to speculate as to the exact cause of Sunday’s accident, the unsettling similarities between Lion Air Flight 610 and Ethiopian Airlines Flight 302 suggest that a runaway stabilizer contributed to both crashes. If so, Flight 302’s pilots likely did not cut power to the stabilizer and fly by hand when MCAS tilted the MAX 8’s nose downward, instead reacting by pulling back on the yoke in an attempt to bring the nose back up. This appears to be what happened to Lion Air Flight 610, which recorded erratic altitude fluctuations and unstable vertical speeds shortly after taking off, indicating that the pilots struggled repeatedly with the aircraft’s flight controls prior to impact as opposed to switching the STAB TRIM switches to CUTOUT.

It is true that Boeing needs to implement a comprehensive fix to resolve MCAS’s well-known issues.  But the rush to ground the MAX 8 worldwide—while certainly one way to guarantee safety—risks ignoring the systemic breakdowns in regulatory oversight of pilot training that must be fixed in order to prevent tragedies like Flight 610 and Flight 302 from happening again.

Glenn Wicks is the Managing Director of The Wicks Group, a Washington, DC-based international aviation law and consulting firm. Barry Valentine is the former Acting Administrator of the Federal Aviation Administration and Senior Advisor to The Wicks Group. John Waltz is leading expert in flight simulation training device certification and a Senior Technical Consultant at The Wicks Group.

EU Files Boeing 777X Tax Incentive Dispute With WTO

Los Angeles, CA – The European Union (EU) has filed a dispute with the WTO Secretariat in Geneva against the U.S. regarding “conditional tax incentives” offered by the state of Washington to “commercial airplane manufacturers.”

The EU asserts in the dispute – a not-so-veiled slap at Boeing and its new 777X commercial jetliner – that the “vastly expanded tax incentives are conditioned on local content requirements prohibited by the WTO Agreement on Subsidies and Countervailing Measures.”

The request for consultations was made, the European Commission (EC) said, in response to a decision by the state of Washington in November 2013, to extend to 2040 subsidies to Boeing that were originally granted through 2024.

The EC is charging that the broadened subsidies were contrary to the WTO rules, “because they require the beneficiary to use domestic goods rather than imported ones.”

“The subsidies scheme extension is estimated to be worth $8.7 billion and will be the largest subsidy for the civil aerospace industry in U.S. history,” according to a Commission statement.

The 777X is a new version of Boeing’s successful 777 twin-engine wide-body jet. It’s scheduled to go into service in 2020. The company has reportedly received orders amounting to billions of dollars for the aircraft from a number of air carriers.

The EU’s request Friday for consultations is the first step in a dispute within the WTO’s Dispute Settlement System.

WTO rules call for Washington, D.C. to respond to the request within 10 days, but due to the Christmas holidays, the EU has agreed to extend the deadline until January 7.

The consultations will give the U.S. and the EU the opportunity to discuss the dispute and reach a solution without proceeding to litigation. The talks must begin within 30 days and generally cannot last longer than two months.

If both parties fail to reach an agreement, the EU can request that a “panel of experts” be commissioned to study the dispute and reach a verdict.


Boeing to Source Fiber 777X Components from Japan

Tokyo, Japan – Japan’s Toray Industries has agreed to supply carbon fiber materials for Boeing’s new 777X jet and the Dreamliner in a 10-year deal worth more than $8.6 billion.

The deal calls for Toray to supply the material Boeing will use to build wings for the new jet, a large twin-engine passenger aircraft that’s set for delivery in 2020.

Boeing is building a plant in Washington state dedicated to making the 777X’s wings and Toray “has been selected for these main wings,” it said.

Last year, Toray said it would buy smaller U.S. rival Zoltek for about $584 million, on the back of rising demand for carbon fiber materials, which are lighter and stronger than steel and aluminium.

The news on Monday was partly in response to Boeing’s plan to ramp up production of the Dreamliner, Toray said.

Boeing has said it is planning to raise the number of 787 aircraft being produced every month from the current 10 planes to 12 per month in 2016 and 14 per month by the end of the decade.


Global Air Cargo Volume to Double by 2033

Chicago, IL – Boeing has released a report projecting air cargo traffic to grow at an annual rate of 4.7 percent over the next 20 years, with global air freight traffic expected to more than double by 2033.

Major air cargo carriers were severely hit by the global financial crisis in 2008 and, despite a rebound in 2010, worldwide air cargo traffic has remained flat in recent years, the World Air Cargo Forecast said.

The market began to see growth again in second quarter of 2013 reaching 4.4 percent for the first seven months of 2014 compared to the same period a year earlier.

If this trend continues, 2014 will be the highest growth year for the air freight industry since 2010, according to the Boeing report.

“We see strong signs of a recovery as air freight traffic levels continue to strengthen after several years of stagnation,” said Randy Tinseth, Boeing’s Commercial Airplanes’ vice president of marketing.

The global air cargo market “is now growing at nearly the long-term rates,” he said in a statement.

The new forecast shows Asia-North America and Europe-Asia will continue to be the dominant world air cargo markets with the most traffic volume. Intra-Asia, domestic China and Asia-North America markets are expected to have the fastest growth rates over the next 20 years.

With increased air cargo traffic, the world freighter fleet is also expected to grow with deliveries of 840 new factory-built airplanes and 1,330 passenger-to-freighter conversion airplanes.

More than 52 percent of those deliveries are expected to replace retiring airplanes and the remainder used for fleet expansion.


Boeing Completes Mexico Satellite Project

El Segundo, CA – Boeing has finished production of a trio of communication satellites for the Mexican government.

The $1 billion contract for the “Mexsat” project was signed in 2011 calling for Boeing to design and manufacture two 702HP geo-mobile satellites and contract with the Virginia-based Orbital Sciences Corp. to build the third, a GEOStar-2.

The Orbital-built satellite was completed in 2012 and was successfully launched atop an Ariane 5 rocket in December of that year.

The development of two ground stations in Iztapalapa and Hermosillo was included in the contract and will serve to relay space-based signals to the satellites once they are deployed to their full 134-foot length.

Both Boeing 702HP satellites are equipped with five solar panel “wings” and an antenna roughly the size of a basketball court.

The company has already provided Mexico with five satellites dating back to 1985 with the last launched in 1998 and still in service.

Boeing said it will launch the first 702HP in early 2015 on a Russian Proton-M rocket with the second set to be sent aloft aboard an Atlas V by 2016.