WTO Upholds Ruling Against Washington State Tax Reduction for Boeing

SEATTLE (The Seattle Times/TNS) -

The World Trade Organization on Friday ruled that the U.S. has suitably addressed all but one piece of the European Union’s case alleging that Boeing receives illegal subsidies.

As the years-long legal process enters its final chapters, the lingering trouble lies in the biggest slice of Washington state’s aerospace tax incentives.

A WTO panel adjudicating U.S. compliance with previous rulings found that, while all other Boeing subsidies have been remedied, Washington’s aerospace business tax rate reduction — worth about $800 million to Boeing since 2004 through last year — remains illegal and must still be fixed.

The ruling by the compliance panel is another legal step in an international trade dispute that has played out slowly over more than a decade: The U.S. sued the European Union in 2004 over Airbus subsidies and the EU filed a countersuit in 2006 over subsidies to Boeing.

The U.S. will appeal Friday’s ruling and the appeal won’t be decided for about another year. Only then might Boeing have to consider what it can do to bring the Washington state tax subsidies into WTO compliance.

U.S. government and Boeing officials spun the outcome as a victory because the other 28 state and federal funding programs challenged as subsidies in the dispute, amounting to an alleged $10.4 billion in subsidies to Boeing, have been addressed and are now resolved.

“The panel found that 28 of the 29 programs were consistent with WTO rules,” the U.S. Trade Representative said in a statement.

Boeing General Counsel Michael Luttig in a statement said that “today, the EU and Airbus suffered yet another resounding defeat.”

Airbus officials had an opposite interpretation, with chief executive Tom Enders calling the ruling “a great victory.”

Ted Austell, Boeing vice president for trade issues, said the lone issue now outstanding in the WTO case against the company — the Washington state aerospace Business & Occupation (B&O) tax rate reduction — represents “only the smallest sliver” of the original claims.

Boeing estimates this tax incentive has been worth about $700 million between 2004 and 2015. Data released this month by Washington state show Boeing saved another $101 million from that tax reduction in 2016.

This tax rate reduction is only part of the state incentives that benefit Boeing.

Last year, Boeing saved $242 million from the total package of state tax incentives, including B&O tax credits for property leases and investments in pre-production equipment and a sales and use tax exemption.

However, these other tax incentives are no longer an active part of the WTO dispute panel’s remit. It’s only the $800 million Boeing has saved from the B&O rate reduction that is still in dispute.

This compares with $22 billion in Airbus launch aid — government loans used to fund development of new airplanes — that remain in dispute following the corresponding ruling last September in the parallel WTO suit against the EU.

That case, filed more than a year before the case against Boeing, is closer to an endpoint.

Bob Novick, former general counsel to the U.S. Trade Representative and now outside counsel to Boeing, said the appeal in that case against the EU should be decided this year, after which the U.S. government can begin the process of taking retaliatory trade measures.

“The U.S. is headed for the right to retaliate,” said Novick. “It’s coming very soon.”

If the Washington state B&O tax reduction is found to be out of compliance after the appeal, “We’ll take a hard look and see what we need to do,” Boeing Vice President John Demers said in an interview.

Whatever the outcome, Washington state would not be off the hook for the money it forgives Boeing in tax incentives. The original 2003 agreement between Boeing and the state mandates that if the tax breaks have to be withdrawn for any reason, the state must replace them with an economically comparable arrangement acceptable to Boeing.