WTO Tells U.S. to Withdraw Boeing Tax Break

The World Trade Organization has given the European Union a partial victory in a trade battle with the U.S., finding that a tax break granted to Boeing amounted to an illegal subsidy.

The EU had filed a complaint over seven separate tax incentives for the aerospace industry that were included in legislation passed by the state of Washington in November 2013. Boeing’s key European rival Airbus is backed by the EU.

In a ruling issued Monday, a WTO panel said one of those incentives, which gave Boeing a reduced business and occupation tax rate for the manufacturing or sale of its new 777X jetliner, was a prohibited subsidy because the incentive was contingent on the company using local materials, effectively excluding foreign competition.

“Taking into account the nature of the prohibited subsidy found in this dispute, the panel recommends that the United States withdraw it without delay and within 90 days,” the ruling said.

Boeing downplayed the decision, noting that the EU had claimed Boeing received $8.7 billion in improper subsidies. “This claim was rejected by the WTO, which found future incentives totaling no more than $50 million a year to be impermissible,” Boeing said.

But EU Trade Commissioner Cecilia Malmstrom called the 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,” she said in a statement.

Airbus President Fabrice Bregier has argued the tax breaks would allow Boeing to develop the 777X for free, estimating the damage to Airbus and the European aerospace industry to be around $50 billion so far.

As The Wall Street Journal reports, the U.S. and EU have been battling for more than a decade over government handouts provided to Boeing and Airbus. “At stake are potentially billions of dollars in tariffs the U.S. and EU could impose on each other unless the WTO’s subsidy concerns are addressed,” the WSJ said.

“This case is a small fraction of the overall aerospace dispute, on which the WTO has found overwhelmingly in the United States’ favor,” a spokesman for the U.S. Trade Representative said.