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WTO upholds EU challenge of Boeing tax incentives

The World Trade Organization has found one of seven separate Boeing tax incentives identified by the European Union to qualify as subsidies since it is contingent on the use of domestic goods over imported ones, according to a statement from the WTO.

   The World Trade Organization (WTO) has found one of seven separate Boeing tax incentives identified by the European Union to violate international trade regulations, according to a statement from the global trade body.
   The specific Washington state tax incentive identified by the WTO relates to the aircraft manufacturer’s newest long-haul jet, the 777X. The incentive qualifies as subsidies since it is contingent on the use of domestic goods over imported ones, and therefore is not in compliance with WTO rules.
   WTO said the United States should terminate the subsidy within 90 days, but noted the U.S. is allowed to appeal the decision.
   The WTO case surrounding government tax incentives for Boeing and European rival aircraft maker Airbus Group SE goes back more than ten years.
   The global trade organization in September ruled against the EU and four of its member countries in relation to Airbus subsidies, finding the nations gave more than $18 billion in “launch aid” to help the French company manufacture every model of its large civil aircraft fleet.
   “The [WTO] panel found that, under each of the aerospace tax measures at issue, there is a financial contribution by the Washington State government and a benefit is thereby conferred,” the organization said of the latest Boeing ruling. “The panel concluded therefore that each of the aerospace tax measures at issue constitutes a subsidy within the meaning of Article 1 of the SCM Agreement.
   “The Panel concluded that the siting provisions in ESSB 5952, and in particular the prospective modalities of operation of Washington State Department of Revenue’s discretion under the Second Siting Provision, make one of the challenged aerospace tax measures (namely, the reduced business and occupation tax rate for the manufacturing or sale of commercial airplanes under the 777X programme) de facto contingent upon the use of domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement,” it added.
   For its part, Boeing seemed to take the ruling as a victory, since six of the seven tax incentives were not deemed to violate trade rules.
   “The WTO rejected entirely the EU’s challenge to six of the seven incentives and rejected most of the challenge to the seventh,” the company said in a statement. “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,” it added.
   “Today’s decision is a complete victory for the United States, Washington State and Boeing,” said J. Michael Luttig, general counsel for Boeing. “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,” he said.
   Luttig added that the company expects Airbus to appeal the decision. However, Luttig said, “After any appeal, we fully expect Boeing to preserve every aspect of the Washington state incentives, including the 777X revenue tax rate.”
   Airbus, however, also saw the WTO decision as a victory in its favor, calling the ruling a “knockout blow to Boeing’s record-breaking subsidies.”
   “The United States and Boeing picked this fight at the WTO, and today’s ruling is yet another blow for that strategy,” said Airbus Group CEO Tom Enders. “Those prohibited subsidies must be withdrawn immediately following today’s historic ruling, meaning that Boeing must give up these massive tax subsidies.”
   Fabrice Brégier, Airbus president and CEO, called on the U.S. Trade Representative to take immediate action and “insist that Boeing cease its anti-competitive behavior.”
   “The earlier WTO rulings had already confirmed that B787 was the most highly subsidized aircraft in the history of aviation,” he said. “Today’s report leaves no doubt that Boeing has gone even further.
   “The 777X will not cost Boeing a single dollar to develop thanks to Washington State’s taxpayers,” he said. “We estimate the damage to Airbus and the European aerospace industry in the region to be $50 billion so far, and that’s only for the 777X.”
   Enders said, “We hope this outcome will lead those at Boeing who advocate continuing this trade dispute to reconsider.”

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