News / Northwest

Trade body: Boeing tax breaks from Washington illegal

WTO wants federal government to put end to ‘prohibited’ subsidies from state

By RAF CASERT and JAMEY KEATEN, Associated Press

Published: November 28, 2016, 7:03pm

GENEVA — U.S. plane maker Boeing received major illegal tax breaks from Washington, a world trade body ruled Monday, adding that the federal government should now take action to end that support within months.

The Chicago-based company and the European Union, which backs Boeing’s key European rival Airbus, both claimed the ruling by the World Trade Organization as a victory in a longstanding battle for contracts between the two aerospace giants.

The WTO found that the support Washington promised to give Boeing from 2024 to 2040 amounted to “prohibited” subsidies. The support offered by Washington came on condition that Boeing keeps the production of the wings for the wide-bodied 777X plane in the state, effectively excluding foreign competition. Boeing has extensive plants around Seattle.

The 28-member bloc said the WTO had ruled that $5.7 billion in subsidies were illegal, out of a total $8.7 billion in measures that it reviewed.

Gov. Inslee says tax breaks were 'right thing to do'

OLYMPIA (AP) — The World Trade Organization has ruled that Boeing received illegal tax breaks from Washington to keep 777X production in the state. What happens next isn’t entirely clear.

The Chicago-based company and the European Union, which backs Boeing’s European rival Airbus, both claimed the ruling as a victory in a longstanding battle for contracts between the two aerospace giants.

The WTO found the support Washington state promised to give Boeing from 2024 to 2040 amounted to “prohibited” subsidies. The WTO ruled that $5.7 billion in subsidies were illegal, out of a total $8.7 billion in measures it reviewed.

Reaction to the ruling:

• Gov. Jay Inslee said in a statement:

“Three years ago, lawmakers passed, on a bipartisan basis, a package of legislation that resulted in the Boeing 777X being assembled in Washington state, ensuring the health of the Washington aerospace industry and sustaining jobs in our state. That was the right thing to do for our state’s economic future and it still is.

“We will continue to work with the Office of the U.S. Trade Representative in Washington, DC, to determine how to respond to the WTO Panel report. It is important to note that the WTO Panel rejected the EU’s arguments with respect to six of the seven challenged tax measures. Moreover, it is too early to tell what actions the state might undertake in response to the Panel report as it is likely to be appealed.

“Washington state is a great place for aerospace companies to do business. Washington is home to more than 88,300 skilled aerospace workers and a cluster composed of over 1350 companies, making our industry one of the most robust and dynamic in the world.”

• Republican Senate Majority Leader Mark Schoesler said that Airbus’s complaints about the subsidies are “the pot calling the kettle black.”

“They’re not receiving extremely favorable treatment? Hardly,” he said.

• Sen. Reuven Carlyle, a Democrat from Seattle who sponsored the 2013 tax incentive bill when he was a state representative, said the WTO “categorically rejected the overwhelming majority of the European Union’s case.”

He said that the element of the ruling related to Washington “is pretty modest compared to the central argument.”

“If that’s the strength of their entire case compared to the U.S. case against the European Union, that’s little league versus the majors in terms of scale,” he said.

Carlyle said that if the ruling were upheld on appeal and there wasn’t some type of negotiated solution, the Legislature has options, adding that “the ability to continue to solidify Washington state’s role with the aerospace industry is in no way compromised.”

But Boeing called that figure excessive and said only “future incentives” of $50 million a year were found impermissible in the WTO decision.

Appearing to counter both, a Geneva-based trade official, speaking on condition of anonymity because he was not authorized to speak publicly about the matter, said the ruling addressed only the legality of the measures, and not the possible financial benefit that could be drawn from the subsidy.

The ruling is but a part of a wider squabble involving accusations between the U.S. government and the 28-nation EU over support for Boeing and Airbus dating to 2004.

“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.

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 European bloc and Airbus to appeal the ruling, saying the WTO had found that the U.S. 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.”

Airbus President Fabrice Bregier argued the state’s support in the United States would allow Boeing to develop the 777X for free on taxpayers’ costs.

He estimated the damage to Airbus and the European aerospace industry to be around $50 billion so far, “and that’s only for the 777X.”

Washington Gov. Jay Inslee said in a statement that the tax breaks were “the right thing to do for our state’s economic future,” noting that more than 88,000 aerospace workers are employed in the northwestern state. He said he would work with federal officials about how to respond.

The case could have some implications for President-elect Donald Trump’s ambitions to support U.S. business first and foremost. Rejecting some of the EU claims, the WTO found that only one of seven tax incentives provided by Washington state amounted to illegal subsidies for wings for the wide-body jet. In essence, the “prohibited subsidy” involved the reduction of the business tax rate on the condition that the wings were produced domestically within the United States.

Airbus had already confidently predicted victory at the WTO over the Washington state tax incentives, saying during the latest tit-for-tat showdown in September that the alleged subsidies would “almost certainly be condemned as illegal.” Airbus had made that assertion after the trade body had found that the EU had provided billions of dollars of improper subsidies to the European plane maker.

Gov. Inslee says tax breaks were 'right thing to do'

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