WTO says Boeing’s 777X tax break was illegal

Tax incentive was part of $8.7bn aid to manufacture new aircraft and carbon-fibre wing in Washington

A model of the  777X aircraft. Washington landed the 777X work, as well as a composite-wing factory, after pledging to extend  tax incentives for aerospace-related companies. Photograph: Bloomberg

A model of the 777X aircraft. Washington landed the 777X work, as well as a composite-wing factory, after pledging to extend tax incentives for aerospace-related companies. Photograph: Bloomberg

 

Boeing received an illegal tax break from Washington state as part of $8.7 billion (€8.2bn) 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 per cent is a prohibited subsidy that must be removed, a three-judge panel said on Monday in Geneva.

The tax break, which takes effect when the first 777X is delivered in 2020, gives an unfair advantage to the US aircraft maker to the detriment of overseas manufacturers, said the WTO.

The European Commission said Boeing would gain $5.7 billion from the disputed benefit,while the US company put the value at $1 billion over 20 years.

The decision marks the latest twist in a long-standing clash between the US and the EU 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 aircraft maker’s general counsel, said in a statement. The company expects the 777X tax break to be upheld if appealed, he said.

Appeals

If the US appeals the decision, as expected, the case would follow the same circuitous legal process as 2011 WTO rulings that barred European aid for the Airbus A380 superjumbo and US perks for Boeing’s 787 Dreamliner.

The otherwise close trade partners have been sparring over aircraft incentives for more than a decade after the US terminated a previous agreement on the matter.

The WTO found in September that the EU failed adequately to remedy some of the incentives deemed illegal in 2011, and compounded the issue with below-market loans for the planemaker’s A350. The US would be allowed to pursue retaliatory sanctions if the finding stands.

The EU is appealing the ruling, and disputing US claims of $22 billion in damages. Illegal benefits The WTO is also expected to determine next year whether the US and Boeing have adequately addressed $5.3 billion in illegal benefits that flowed to the aircraft maker from Nasa and state aid a decade ago as it developed the 787.

The most recent dispute centres on $8.7 billion in state aid approved in 2013 by lawmakers in Washington, Boeing’s traditional manufacturing hub, as the aircraft 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.

Tax breaks

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

Tom Enders, chief executive of Airbus, 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. – Bloomberg

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