The European Union and the United States urged each other on Tuesday to stand down in a tariff spat over rival aircraft makers Airbus and Boeing, after the World Trade Organization (WTO) allowed both of them to impose billions of dollars of duties.

The European Union has the right to impose 4 billion dollars in customs duties on US imports

The WTO announced in Geneva that the European Union is entitled to slap nearly 4 billion dollars of tariffs on US imports annually to retaliate against unfair US subsidies for Boeing.

The free-trade watchdog issued a similar ruling for the US one year ago, allowing Washington to impose tariffs on 7.5 billion dollars of European goods, to punish the EU for Airbus subsidies.

The US has already started slapping tariffs on imported European cheese, butter and wine, as well as aircraft components and other EU products.

Attempting to reach a negotiated settlement with the United States

"I have made it clear that my strong preference is for a negotiated settlement with the US," European Commission Vice President Dombrovskis said in a statement.

"Our suggestion is that the US withdraws the tariffs they imposed as a consequence of the Airbus ruling," the EU executive's top trade official added.

In this case, the EU would refrain from levying the retaliatory duties that were allowed by the WTO, according to Dombrovskis.

Punitive EU tariffs could run as high as 100 per cent, and the bloc has previously threatened to target US-made products such as ketchup or video game consoles.

A 15-year conflict between Brussels and Washington

US Trade Representative Robert Lighthizer said the US would "intensify" negotiations with the EU and was determined resolve this this dispute on the large subsidies that European governments have provided to Airbus. Lighthizer warned Brussels against imposing the WTO-authorized tariffs against the US, arguing that the tax break for Boeing that the WTO had found unfair was already scrapped earlier this year.

"Any imposition of tariffs based on a measure that has been eliminated is plainly contrary to WTO principles and will force a US response," he said.

The WTO ruling is the latest step in a 15-year-long dispute between Brussels and Washington over state support for the world's two largest aircraft companies.

The sum that was granted to the EU is not only lower than the one awarded to the US, but also far below the 8.58 billion dollars that the EU had sought to punish Washington for tax breaks and other subsidies.

Boeing's tax credits continued despite breaching free trade rules

Trade dispute judges at the WTO in Geneva found last year that tax breaks for Boeing had continued despite earlier rulings that had declared such policies in violation of free trade rules. The WTO has also found that unfair European subsidies for Airbus were not scrapped. Airbus and Boeing both advocated for a negotiated settlement in separate statements. Both companies have been hit by the coronavirus pandemic that has stalled international travel and reported losses and job cuts after the second quarter.