WTO: Washington state offered Boeing illegal tax breaks

The World Trade Organization ruled that Washington state undermined fair competition by giving Boeing illegal tax subsidies that are likely wort billions of dollars. 

First Look

The World Trade Organization (WTO) ruled on Monday that Boeing received large illegal tax breaks from Washington state to help it develop its new 777X jetliner, adding that the federal government should now take action to end that support within months.

The global trade body said the “prohibited” subsidies to the US plane manufacturer came in the form of a renewed cut in the state's main business tax for aerospace from 2024 to 2040, when Boeing was considering where to base assembly of the latest member of its long-haul jet family. The Chicago-based company has extensive plants around Seattle.

The ruling, which can be appealed by either side, comes as the United States ponders the first sanctions against the European Union in more than a decade over earlier subsidy rulings against Boeing's key European rival, Airbus. Both Boeing and the European Union, which backs Airbus, called the ruling a victory.

The The WTO did not give a value for the banned aid in its latest ruling, but the EU said that $5.7 billion in subsidies were illegal, out of a total $8.7 billion in measures that it reviewed. Airbus said the measures had cost it $50 billion in sales.

Boeing called the $5.7 billion figure excessive and said the WTO found impermissible only "future incentives" of $50 million a year, a fraction of the total amount at stake in the world's largest trade dispute.

"We are really the only party that can credibly come up with a figure," said Boeing spokesman Tim Neale, referring to the value of the tax breaks. He said the $50 million per year was a "conservative estimate" and even over a 20-year span would only total $1 billion.

He said the EU effort was aimed in part to distract attention from a far more costly WTO ruling against Airbus two months ago.

The ruling is but a part of a wider squabble involving accusations between the US government and the European Union over state support for the two aerospace giants, dating back to 2004.

The WTO urged the United States to withdraw the prohibited subsidy in 90 days, but did not say how this should be done, prompting immediate discord between US and European representatives about how much the planemaker would have to give up and when.

Seizing on previous U.S. statements that Airbus subsidies originally deemed prohibited - but later watered down on appeal - should be repaid to taxpayers, European sources said Boeing would now have to forego billions of dollars in aid.

EU Trade Commissioner Cecilia Malmstrom called Monday's ruling "an important victory for the EU and its aircraft industry."

"We expect the U.S. to respect the rules, uphold fair competition, and withdraw these subsidies without any delay," Malmstrom said in a statement.

For its part, Boeing said it expected the EU and Airbus to appeal the ruling, saying the WTO had found that the US company had not received any benefit yet from the 777X tax rate and wouldn't until the plane is first delivered in 2020.

"Today's decision is a complete victory for the United States, Washington State and Boeing," Boeing general council J. Michael Luttig said in a statement. "In rejecting virtually every claim made by the EU in this case, the WTO found today that Boeing has not received a penny of impermissible subsidies."

Boeing officials and lawyers, however, played down the prospect of having to pay back any support, noting there was no money to discuss until deliveries of the new jet start in 2020.

They said they were confident the ruling would be overturned on appeal and insisted the tax breaks were dwarfed by $22 billion in subsidized loans by European governments to Airbus, adding these could spark U.S. retaliation within a year.

The case could have some implications for President-elect Donald Trump's ambitions to favor US businesses over foreign ones.

On paper, the ruling is seen as a step backwards for the United States because the WTO had earlier ruled that a previous version of the same tax breaks had fallen into a weaker category of subsidies, which the Geneva watchdog treats less harshly.

Under WTO rules, subsidies that are explicitly tied to exports or, in this case, the use of local content are banned.

European officials argue Boeing fell into a prohibited subsidy trap of its own making when state lawmakers insisted on locking Boeing into Washington more clearly than before, after Boeing accepted earlier tax breaks only to move work elsewhere.