Boeing received illegal tax break - WTO

Chicago - Boeing received an illegal tax break from Washington state as part of $8.7bn in aid to assemble the 777X and manufacture the jetliner’s carbon-fibre wing there, the World Trade Organisation (WTO) said.

An incentive cutting a state levy on gross receipts by 40% is a prohibited subsidy that must be removed, a three-judge panel said Monday in Geneva. The tax break, which takes effect when the first 777X is delivered in 2020, gives an unfair advantage to the US plane maker to the detriment of overseas manufacturers, the WTO determined.
 
The European Commission said Boeing would gain $5.7bn from the disputed benefit, while the US company put the value at $1bn over 20 years. The decision marks the latest twist in a longstanding clash between the US and the European Union over government incentives to ease the heavy costs of developing new jetliners for Chicago-based Boeing and Europe’s Airbus Group.

The ruling is “an important victory for the EU and its aircraft industry,” EU Trade Commissioner Cecilia Malmstrom said in a statement. “We expect the US to respect the rules, uphold fair competition, and withdraw these subsidies without any delay.”

Boeing said the WTO rejected six of the seven incentives challenged by the EU and singled out a tax break on future 777X revenue, while allowing the incentive to stay in place for other jetliners the company makes in the Seattle area.

“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,” J. Michael Luttig, the plane maker’s general counsel, said in a statement. The company expects the 777X tax break to be upheld if appealed, he said.

The WTO is also expected to determine next year whether the US and Boeing have adequately addressed $5.3bn in illegal benefits that flowed to the plane maker from NASA and state aid a decade ago as it developed the 787.

The most recent dispute centres on $8.7bn in state aid approved in 2013 by lawmakers in Washington, Boeing’s traditional manufacturing hub, as the plane maker threatened to manufacture the redesigned 777 elsewhere.

Washington landed the 777X work, as well as a composite-wing factory, after pledging to extend through 2040 tax incentives for aerospace-related companies that had been due to expire after 2024.

The measure has drawn fire locally because it didn’t require Boeing to maintain employment at a set level to maintain the tax breaks.

Airbus on Monday blasted the incentives, claiming they cost the company at least $95bn in lost aircraft sales.

Tom Enders, chief executive of the European planemaker, called for a global framework that would end the “ridiculous series of disputes” and spell out permissible aircraft subsidies for manufacturers in Canada, Russia and China.

“This WTO battle is a battle of the past which benefits only the armies of lawyers both sides employ for more than a decade,” he said.