Investing.com -- The Trump administration’s decision to impose tariffs on civil aircraft parts may face legal challenges under international trade rules, according to Bank of America (NYSE:BAC) (BofA) analysts.
At the center of the issue is whether the U.S. tariffs override obligations under the World Trade Organization (WTO) Agreement on Trade in Civil Aircraft (ATCA), which has mandated the elimination of tariffs on civil aircraft and related components since 1980.
The U.S. could seek cover under Article XXI of the General Agreement on Tariffs and Trade, which allows exemptions from WTO commitments on grounds of “essential” security interests.
While the WTO has historically interpreted “essential” to mean a state of war, the U.S. has long argued that the term is “self-determining,” giving each country discretion in defining its national security.
However, the legal foundation for the tariffs remains uncertain. The Trump administration invoked the International Emergency Economic Powers Act (IEEPA) as a justification, but BofA analysts highlight that “IEEPA isn’t a tariff legal authority,” and that “many in the legal community think these tariffs could fail when litigated in court.”
The aerospace industry is already feeling the impact of the recent trade tariffs. Howmet Aerospace (NYSE:HWM_p), a key player in the sector, has issued a force majeure notice to its customers, a legal clause that permits contract obligations to be suspended when unforeseen and uncontrollable events occur.
The company said it would work with customers, “including discussing your interest in alleviating the impact of the Tariff Executive Order on Howmet.”
This marks the first instance of a commercial aerospace supplier taking such action since the introduction of the tariffs.
“We would expect other suppliers to follow as Howmet is widely respected as a disciplined and well-run supplier,” BofA analysts said.
Suppliers may find themselves compelled to negotiate pricing concessions with customers to manage the financial burden of the increased costs due to the tariffs.