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WTO says Boeing was offered illegal tax breaks in US

By By RAF CASERT and JAMEY KEATEN
By By RAF CASERT and JAMEY KEATEN

GENEVA — A World Trade Organization panel on Monday ruled that Washington state offered billions in illegal tax breaks to plane maker Boeing, and that the U.S. government must take action to end the plans within months.

The European Union, which backs Boeing's EU-based rival, Airbus, claimed it as a landmark victory in the longstanding battle between the two companies that dominate the global market for airplanes.

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 back to 2004.

Monday's decision found that the support Washington state 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 of the wide-bodied 777x plane in the state, excluding foreign competition.

Boeing has extensive plants around Seattle and the EU says the subsidies would have amounted to $8.7 billion. EU Trade Commissioner Cecilia Malmstrom said the WTO ruled against $5.7 billion of the measures.

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 business tax rate on the condition that the wings were produced domestically within the United States.

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.

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.

Boeing Response to WTO Ruling on Washington State Tax Incentives

The World Trade Organization (WTO) today rejected virtually all of the European Union's challenges to the Washington state tax incentives.
In today's case, the EU challenged seven different state tax incentives.  The WTO rejected entirely the EU's challenge to six of the seven incentives and rejected most of the challenge to the seventh.  The WTO held only and narrowly that a reduction in Washington state's Business and Occupancy (B&O) tax rate for future 777X revenues is inconsistent with the WTO agreements.  The WTO threw out all of the EU's other challenges to various incentive programs and left untouched even the B&O tax rate as it applies to revenue from the other Boeing models produced in Washington state--the 737, 747, 767, 777 (current model) and 787. 
In total, the EU claimed that Boeing had received $8.7 billion in subsidies.  This claim was rejected by the WTO, which found future incentives totaling no more than $50 million a year to be impermissible.  The WTO found that to date Boeing has received no benefit from the 777X rate incentive, and will not until 2020, because the first airplane will not be delivered until then.
"Today's decision is a complete victory for the United States, Washington State and Boeing," said J. Michael Luttig, Boeing's general counsel.  "The WTO found in September that Airbus has received $22 billion in illegal subsidies from the EU and that without these subsidies neither Airbus itself nor any of its airplanes would even exist today.  By contrast, 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." 
"The WTO has repeatedly found that Airbus is entirely a creature of government, and they must now bring themselves into compliance with the international laws or risk massive sanctions," said Luttig.
In light of today's decision and the massive liability that the WTO has found against the EU and Airbus, we expect the EU and Airbus to appeal today's decision.  "After any appeal," Luttig said, "we fully expect Boeing to preserve every aspect of the Washington state incentives, including the 777X revenue tax rate."

Associated Press

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