U.S. Considering Tariffs on European Aircraft and Aircraft Parts

The Office of the U.S. Trade Representative has announced a preliminary proposal to implement new tariffs on a range of European products with a significant focus on the civil aviation sector, including both parts and completed aircraft.  The proposed tariffs arise as a result of a long-running WTO case brought by the U.S. against the EU and France, Germany, Spain, and the UK.  The WTO found that the EU provided substantial “launch aid” to Airbus and that those subsidies both helped Airbus launch its commercial aircraft and cost Boeing market share.

The purpose of the tariffs (or countermeasures) is to offset the estimated $11 billion per year in trade harm the USTR estimates result from EU subsidies.

It is unclear at this point at what rate tariffs would be imposed on the particular goods identified.  The proposed HTS numbers affected include numbers that are very familiar to the distribution community, including 8803.20.0030, 8803.30.0030, and 8803.90.9030, however, the scope appears to be limited to parts imported “for use in new civil aircraft, not for use by the Department of Defense or the U.S. Coast Guard, of an unladen weight exceeding 15,000 kg provided for in statistical reporting numbers 8802.40.0040, 8802.40.0060 and 8802.40.0070.” Thus from the language it appears the countermeasures target the importation of parts used in the manufacture of new aircraft, but not for the maintenance of the existing fleet.  Anyone supporting the production of new civil aircraft would be well advised to review the HTS numbers proposed for countermeasures.  They can be found here.

The USTR has requested public comments on the proposed action.  Comments can be submitted through http://www.regulations.gov under docket number USTR-2019-0003.  Any comments must be submitted by May 28, 2019.

EU Considers Listing US as Tax Haven

Looking for a Tax Haven?  Maybe the Answer is in the United States!

The European Commission is developing a list of jurisdictions that are considered to be risks for tax avoidance.  They are in the process of updating this list and the United States has been flagged as a risk in the area of tax good governance.

To be fair, the United States enters the list as one of 90 countries that the EU views as potential problems, and in 2017 the EU will winnow that list down to its final resolution.  Only 160 countries were initially assessed so more than half the world is subject to this next-level EU scrutiny.  Countries are identified based on three risk factors:

  • Transparency of the tax system (this seems to be focused more on automatic exchange of information on tax rulings and the automatic exchange of information between tax authorities, as opposed ot making taxation easy to understand)
  • Tax advantages for corporations
  • No corporate income tax or zero-percent income tax

The United States was identified in two out of the three categories: Transparency and corporate tax advantages.

This is just the first step in a three step process.  Now that the European Commission has produced a scoreboard of indicators, they still need to engage in screening and listing.  Under the screening process, EU Member States will identify nations that must be formally screened by the EU.  This screening will include a dialogue between the EU and the country in question, to allow the country to react to any concerns raised (perhaps this could be considered in any tax package that the new Administration proffers).  Then, when the screening process is complete, nations that refused to cooperate or engage with the EU regarding tax good governance concerns would be put on the EU list of ujsidictions without good tax governance.  Presumably this could lead to EU impediments against transfer of funds to or from those tax havens.

The EU will create a map that shows a full consolidated overview of countries and territories ‘listed’ by Member States for tax purposes.  The US is unlikely to be listed on the final list of bad actors, but it is unclear who may finally make that list.  It will be important to gauge whether this effort impacts international payments for members of the aerospace community.

A full review of the EU work program for this effort is available online.

PMA Parts Exported to Europe

An ASA member asked for information about how to export, to the EU, subcomponents of PMA components. This sort of question arises when the PMA-ed component is made up of subcomponents and there may be a market for the individual subcomponents, such as when they are required as replacement parts.[1]  It is important to bear in mind that FAA regulations require that when any component parts, or replacement articles, of the PMA article leaves the PMA manufacturer’s facility as ‘FAA approved,’ then that component part or replacement article must be identified with (a) the manufacturer’s part number and (b) the manufacturer’s name, trademark, symbol, or other FAA approved manufacturer’s identification. This identification may be something other than a marking where the design approved by the FAA does not include a marking requirements for that subcomponent.

Generally speaking, EASA 145 organizations may accept PMA replacement and modification parts[2] when accompanied by an FAA Form 8130-3 with appropriate certifying statements.[3] The appropriate certifying statements are described in the Technical Implementation Procedures (TIP).

The TIP explain that EASA directly accepts PMA approvals without further showing, for modification and/or replacement parts intended to be installed on EASA-certified/validated products.[4] Additional requirements that apply to PMAs exported from the US to the EU are also described in the TIP.

Subcomponents of PMA parts would be included as replacement or modification parts produced under a PMA approval, so the EASA acceptance of the PMA approval would be sufficient to permit import into EASA of the subcomponents, as long as they meet the other requirements for PMA parts.

In all cases of PMA parts and their subcomponents, the part must fit into one of these three categories:

  • The PMA part is not a critical component.[5] The vast majority of PMA parts are not critical components.
  • The PMA part is a critical component and it conforms to design data obtained under a licensing agreement from the TC or STC holder;[6] or
  • The PMA part is a critical component and the PMA holder holds an EASA STC that incorporates the PMA part.[7]

Parts are required to be accompanied by an FAA-signed 8130-3 tag.[8] The remarks block of the 8130-3 tag should[9] be annotated with language that reflects the category into which the part falls:

  • If the PMA part is not a critical component, then the text should state: “This PMA part is not a critical component.”[10] Remember, the vast majority of PMA parts are not critical components.
  • If the PMA part is a critical component and it conforms to design data obtained under a licensing agreement from the TC or STC holder, then the text should state: “Produced under licensing agreement from the holder of [INSERT TC or STC NUMBER].”[11]
  • If the PMA part is a critical component and the PMA holder holds an EASA STC that incorporates the PMA part, then the text should state: “Produced by the holder of the EASA STC number [INSERT THE FULL REFERENCE OF THE EASA STC INCORPORATING THE PMA]”;[12] or

The word used repeatedly in association with the remarks block annotation is “should” and not “shall.” The permissive “should” is used in both the header language[13] and the subparagraphs identifying the specific recommended text.[14] Typically, required items are described with the imperative “shall”[15] while the term “should” typically describes recommended actions that are not required. As a practical matter; however, European customers often treat this TIP language as if the “shoulds” were mandatory and not merely permissive.

Subcomponents of PMA parts generally ought to follow the same documentation rules as the complete PMA parts, because the FAA approval basis for the subcomponents is still the PMA. Thus, there should be some marking on the 8130-3 tag that is consistent with the design approval holder’s designation. Again, most PMA parts are non-critical and the subcomponents of those parts will also be non-critical.

A very small amount of PMA parts are critical. If the subcomponent is also a critical component, then the language about licensing agreement or the language about an EASA STC number should be included on the 8130-3 tag.

In those very rare cases where the PMA is a critical component but the subcomponent replacement part is not a critical component, there is some ambiguity about how to categorize the part for purposes of identifying the remark-block annotation. When exporting such non-critical PMA subcomponents to the EU, it is unclear whether the annotation should be based on the classification of the PMA itself, because the documentation required by category is based on “the PMA part” (and it is unclear from the text whether this means the top-level assembly or the subcomponent).[16] The most reasonable interpretation of this language is that when the subcomponent itself is not a critical component, then the non-critical language should be used on the 8130-3 tag; however because of the vagueness in the existing language, there is room for the FAA and/or EASA to interpret this position in a different way in the future.

In most cases, though, subcomponents will belong to non-critical PMA parts, so their categorization will remain non-critical at the subcomponent level.

There is one additional documentation requirement for subcomponents of PMA articles; FAA Order 8130.21H explains that the remarks block must reference the fact that the article is a subcomponent of a PMA part:

“When used for an export for a new subcomponent of a PMA/TSO authorization article higher assembly, complete FAA Form 8130-3 with the subcomponent information, and enter a statement in Block 12 indicating the part or article is a subcomponent of a PMA or TSO authorization (for example, “This part is a subcomponent of a PMA/TSO authorization”). (Refer to appendix A, figure A-15, to this order.)”[17]

The parts must be appropriately marked.[18] This means marked in accordance with the TIP.[19] The TIP requires all replacement and modification parts to be marked in accordance with EASA Part 21; however EASA Part 21 does not intend that all parts be marked. The requirements that are applicable to PMA parts are those that apply to all replacement and modification parts, which is that they are marked in the in a manner identified by the applicable design data.[20] Guidance material clarifies EASA’s intent with respect to this provision by explaining that

“It is not the intent of 21.A.804(a)(1) to introduce an obligation for a production organization (manufacturer) to mark new parts or appliances with information which is not identified by the design approval holder. Therefore, the physical marking of parts and appliances is only required when established by the design approval (TC, STC, ETSO, repair, change) holder.”[21]

PMA parts are specifically exempt from the EPA marking requirement;[22] but they are required to be marked in accordance with their approved designs. This means that so long as the complete PMA part is marked in accordance with FAA-approved design requirements, the fact that the subcomponent does not bear the marking (because the marking should be elsewhere) is not a bar to export of the part from the US to the EU. This is consistent with rules that apply to parts manufactured under production certificates, where those parts do not need to be specifically marked unless they are required to be marked according to the approved design.

[1] The PMA holder is permitted to Identify any portion of the PMA article (e.g., sub-assemblies, component parts, or replacement articles) that leave the manufacturer’s facility as FAA approved, so these subcomponents are approved parts. 14 C.F.R. § 21.316(e).

[2] The term “replacement and modification parts” is interpreted as it is used in the Technical Implementation Procedures (TIP).

[3] Agreement between the United States of America and the European Union on Cooperation in the Regulation of Civil Aviation Safety, Annex 1, page CE/USA/Annex 1/Appendix/en 44 (English Version).

[4] Technical Implementation Procedures for Airworthiness and Environmental Certification, para. 2.8.2(a) (rev. 5; Sept 15, 2015).

[5] Id. at para. 2.8.2(a)(1). For PMAs, a critical component is “a part identified as critical … by the exporting authority.” These are parts for which a replacement time, inspection interval, or related limit was specified in the Airworthiness Limitations Section of the Instructions for Continued Airworthiness. Id. at para. 1.6(i). Among those that are, the limitation that makes it critical will be tied to the PMA design approval.

[6] Id. at para. 2.8.2(a)(2)

[7] Id. at para. 2.8.2(a)(3); see also id. at para. 2.8.2(b) (describing the process for obtaining EASA STC).

[8] Note that the language of section 5.1.10(a) suggests that PAH 8130-3 tags, issued in accordance with 21.137(o), would not be acceptable for export to the EU because they are not signed by the FAA and therefore fail to reflect an FAA certification.

[9] The text uses the permissive phrasing “one or more of the following statements should be written in the remarks block”

[10] Technical Implementation Procedures for Airworthiness and Environmental Certification, at para. 5.1.10(b)(1)(i).

[11] Id. at para. 5.1.10(b)(1)(iii).

[12] Id. at para. 5.1.10(b)(1)(ii).

[13] Id. at para. 5.1.10(b)(1).

[14] Id. at para. 5.1.10(b)(1)(i, ii, and iii).

[15] E.g. 14 C.F.R. § 1.3(b)(1) which explains that in the FAA’s regulations, “Shall is used in an imperative sense.”

[16] E.g. Technical Implementation Procedures for Airworthiness and Environmental Certification at para. 5.1.10(b)(1).

[17] Procedures for Completion and Use of the Authorized Release Certificate, FAA Form 8130-3, Airworthiness Approval Tag, FAA Order 8130.21H, para. 4-5(l)(6) (Aug 1, 2013).

[18] Agreement between the United States of America and the European Union on Cooperation in the Regulation of Civil Aviation Safety, Annex 1, paragraph 3.5.2(d), page CE/USA/Annex 1/en 14 (English Version).

[19] Technical Implementation Procedures for Airworthiness and Environmental Certification, para. 5.1.10(a)(3) (rev. 5; Sept 15, 2015) (requiring marking); see also id. at para. 5.5.2(a) (explaining the marking requirements).

[20] EASA 21.A.804(a).

[21] EASA GM 21.A.804(a)(1) (Identification of parts and appliances).

[22] Agreement between the United States of America and the European Union on Cooperation in the Regulation of Civil Aviation Safety, Annex 1, paragraph 3.5.7, page CE/USA/Annex 1/en 15 (English Version).

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