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UPDATE 2-UK tariff waiver puts domestic trade pressure on Airbus

(Adds USTR statement welcoming UK tariff move)

PARIS/LONDON, Dec 9 (Reuters) - Britain’s decision to suspend tariffs on Boeing Co jets and other U.S. 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.

The UK 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 among 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 U.S. and EU trade chiefs are in “serious” negotiations to end the 16-year-old aircraft trade dispute.

Late on Wednesday, the U.S. Trade Representative’s office welcomed Britain’s decision, saying it “shares the UK’s objective of reaching a negotiated resolution.”

But USTR said Britain had “no authority from the WTO” to impose tariffs on its own in the aircraft subsidies case after leaving the EU because it did not separately sue the United States.

AEROSPACE RIFT

Privately, several European trade sources said the surprise UK move marked 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 U.S. 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.

JURISDICTIONAL DISPUTE

The decision spawned a technical row between London and Brussels about whether Britain can in any case legally impose tariffs inherited from the EU after Jan. 1 - expanding a list of jurisdictional issues arising from Britain’s EU exit.

The EU said it alone could act in the transatlantic dispute.

Britain insisted it could revive the tariffs if needed but said their suspension would help resolve the subsidy spat, which has spread to hit other industries. Its officials had previously indicated the tariffs would stay.

“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 U.S. President Donald Trump leaves office next month. One proposal, which was swiftly rejected, was to call a truce on the aircraft tariffs, leaving duties on sectors like wine in place.

Even with the United States welcoming Britain’s move to drop 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 U.S. source said. “The entire discussion has been structured around finding a whole solution”.

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

Barring an agreement, one option on the table is to widen the tariffs to cover plane parts coming from Europe to Alabama, effectively closing the door to the U.S. market for the resulting locally assembled Airbus jets, two sources said. (Reporting by Tim Hepher, William James and Andrea Shalal; Additional reporting by David Lawder and Kanishka Singh; Editing by Tom Brown and Peter Cooney)

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