Winging It

Or, How Not to
Apply Tariffs

Photo by Clemens Vasters / CC BY 2.0

By Emerson Schwartzkopf

Did you hear the one about the airliner that’ll jack up your business costs, even if you don’t buy a ticket? Unfortunately, for U.S. hard-surface fabricators, it’s no joke.

While all the attention on foreign commerce is focused on the U.S.-China trade war, there’s a long-brewing battle about airplanes that could increase the price of premium quartz surfaces and some dimensional natural stone coming from Europe.

We’re not talking some obscure surcharge, either. This tariff could double – read again, double – the cost of some material.

The controversy began 15 years ago, when Boeing Co., the primary U.S. aircraft manufacturer, accused European aerospace firm Airbus of violating a 1990s agreement about receiving government subsidies. The four countries backing Airbus – France, Germany, Spain and the United Kingdom – provided what they called “launch aid” in massive loans to help fund initial production of the company’s products.

Boeing and Airbus airliners make up the bulk of commercial airline fleets worldwide. Board any plane of more than 100 seats anywhere (except Russia, Cuba and North Korea) and you’ll be flying on a Boeing or Airbus product. Airliner sales range in the billions of dollars annually, so nobody’s going to miss a trick in getting an advantage or crying foul.

The subsidy battle escalated to the level of the World Trade Organization after negotiations broke down between the United States and the European Union (EU). The wheels kept turning – albeit very, very slowly – through the Great Recession and the administrations of three U.S. presidents.

Of course, none of this involved hard surfaces … until this year. The WTO indicated that the U.S. claims had some merit, although opinions differ on the effect of launch-aid subsidies. (You can find out more here.) As a result, the U.S. Trade Representative (USTR) office prepared two lists of products subject to possible punitive tariffs.

The first list involved items directly associated with Airbus products, such as airliners, helicopters and spare parts. The second list took up five-and-a-half pages in the Federal Register, the U.S. government’s official journal, with a virtual dockside sampling of imports ranging from cheese to copper pipe to clock parts to …

… Granite, travertine, slate and the omnibus “other stone” category, along with quartz-surface slabs. Since the subsidy-complaint action escalated from the original four Airbus countries to the full EU, those tariffs would be applicable to every one of the EU’s 28 member countries.

Based on 2018 data, this involves close to a half-billion dollars’ worth of dimensional goods annually.

There can be plenty of arguments on the slew of tariffs now being enforced (with Chinese quartz surfaces) or proposed (with Indian and Turkish quartz surfaces, along with Chinese ceramic tile). Those, however, result from direct competition.

The Airbus action with hard surfaces has nothing to do with the U.S. market and product competition. It provides no relief for U.S. products and addresses no unfair competition with dimensional products. This is a going a tariff too far.

It’s also a tariff action that, in the case of hard surfaces, is being applied unevenly and unfairly, and it’s hard to tell whether that’s by random selection or by intention. Either way, it makes a mockery out of the action.

First, there’s the glaring omission in natural dimensional stone of marble and other calcareous stone on the USTR’s list. Even if someone in Washington is hip enough to the Mohs scale to determine some arbitrary line on stone, it’s indefensible to split marble and limestone from travertine and slate.

Keeping marble and like stones out of the tariff makes a huge difference. Going back to 2018 imports, that decision exempts $320.7 million of materials. It’s a massive benefit to Italian stone exports to the United States, leaving $255 million untouched by the proposed tariffs.

It’s also ironic to leave marble out, as it’s the sector of natural dimensional stone where domestic quarriers would reap the largest benefit of having EU products subject to a possible doubling in cost.

The second problem with the Airbus tariffs comes with ceramic tile. The USTR list offers an incredibly exact definition for goods coming under the tariff: “glazed ceramic tiles having surface area <38.2cm².”

That means any tile of more than six square inches in area gets a pass from the proposed tariff. Basically, it’s meant to hit mosaics. Anything else, including dimensional-sheet tile, isn’t covered.

The third problem with the Airbus tariffs involves quartz surfaces, This is a product that barely had a foothold in the market during the pre-2004 years when the aircraft subsidies took place. Why it appears on the tariff list, when other large-format manufactured hard surfaces like tile are exempt, is, to be kind, baffling.

The inclusion of EU quartz-surfaces also puts most of the premium products from countries with market-driven economies under a tariff. The action also means 10 of the 16 top quartz-surface exporters to the United States wll be subject to, or being considered for, a large tariff.

What can be done about the Airbus tariffs? There’s already been a hearing in May in Washington, where several industry representatives – but not enough – objected to the inclusion of dimensional products. One benefit of the WTO’s slowness is that any action may not take place until mid-2020, and maybe some sense will arrive on the scene.

EU members also comprise eight members of the 14-company Agglomerated Stone World-Wide Association (A.St.A) that supported the U.S. tariffs on Chinese quartz “to guarantee competition in equal conditions for the industry’s and of the consumer’s benefit.” Perhaps it’s time to hear some support for countries playing by the rules of the fair-market game.