Trade body: Boe­ing of­fered il­le­gal tax breaks in U.S.

Daily Local News (West Chester, PA) - - BUSINESS - By Raf Casert and Jamey Keaten

GENEVA » U.S. plane maker Boe­ing re­ceived ma­jor il­le­gal tax breaks from Washington state, 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 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 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.

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 back 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.”

The case could have some im­pli­ca­tions for Pres­i­den­t­elect 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-for­tat 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.

THE AS­SO­CI­ATED PRESS

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

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