A final ruling from the World Trade Organization (WTO) published Thursday in Geneva left standing its decision from 2017 that the major part of the Washington state tax breaks to Boeing are illegal subsidies.
But those tax breaks, worth approximately $100 million a year to Boeing, are likely to remain unchanged several years at least, as wrangling begins between the U.S. and the European Union on how the state should comply with the latest ruling.
“No urgent action is required by Washington state,” said David Postman, Gov. Jay Inslee’s chief of staff.
Delivering the final word in a nearly 14-year standoff, the WTO appeal panel didn’t change the previous finding that the state’s Business & Occupation Tax breaks damaged airplane sales by European archrival Airbus.
A reduced B&O rate was set by the Legislature in 2003 to persuade Boeing to build the 787 Dreamliner in the state. State filings show that from 2004 through 2017, the B&O reduction — which applies to all Boeing airplanes — saved the jet maker about $900 million in state taxes.
The ruling means a new phase in the Boeing subsidies dispute opens as the European Union (EU) pushes for the U.S. to come into compliance, wielding a threat of introducing tariffs if nothing is done. But that process will be lengthy, as is every move in the sloth-like tempo of this WTO case.
Robert Hamilton, Inslee’s trade-policy adviser, said WTO law dictates that if an adverse ruling is issued against a state, the Office of the U.S. Trade Representative (USTR) and the state must consult to come up with a mutually agreeable response.
Hamilton declined to offer any details on possible options, though broadly he said those include repealing the tax breaks or amending them in some way to make them compliant with WTO rules.
And since the U.S. has a parallel case against the EU over its subsidies to Airbus, he said another option is some kind of negotiated settlement between the U.S. and the EU that ends both cases.
“We’ll talk to the USTR and get a fuller list of what our options are,” Hamilton said. “There are a lot of things in play here.”
The decision by the WTO’s appellate body considered whether the United States had complied with a 2012 ruling that found Boeing received at least $5 billion in subsidies banned under international trade rules.
But the ruling was limited. Except for the relatively small Washington state tax program — which the U.S. says was worth just $100 million a year — Thursday’s decision found no grounds upon which the European bloc could seek damages from an arbitrator.
The verdict — one of several disputes pitting Boeing and Airbus in recent years — comes as the Trump administration has taken a hard line against the Geneva-based WTO over administration allegations that the trade body’s rulings are unfair to the United States.
Both sides — as has often been the case in such high-stake standoffs — claimed “a major win” from Thursday’s ruling, although the U.S. claim seemed hollow.
The European Union saw the ruling as “vindicating the EU’s long held position that the United States has taken no steps to comply with WTO rules on support to Boeing.”
In a statement, EU Trade Commissioner Cecilia Malmstrom said: “The Appellate Body has now settled this case definitively, confirming our view the U.S. has continued to subsidize Boeing despite WTO rulings to the contrary.”
Airbus went further, noting that the WTO would allow the 28-nation bloc to seek countermeasures against U.S. products if the United States doesn’t comply.
“This is a clear victory for the EU and Airbus. It vindicates our position that Boeing, while pointing fingers at Airbus, has not taken any action to comply with its WTO obligations, contrary to Airbus and the EU,” Airbus General Counsel John Harrison said.
The WTO ruling found that the Washington state tax break had led to lost sales of Airbus’ A320neo and A320ceo aircraft in five sales campaigns.
Boeing focused on the parts of the rulings in its favor, saying the WTO had rejected “every allegation of unlawful subsidies to Boeing with the single exception of one measure — the Washington state business and occupancy tax.”
Referencing the parallel case that has ruled some Airbus subsidies illegal, Boeing urged “Airbus and the European Union to immediately bring themselves into full compliance with the substantial rulings against these parties by the WTO.”
After 15 years of legal wrangling that has likely had little impact on actual aircraft sales, Gary Hufbauer, a trade analyst at the Peterson Institute for International Economics said, “the only people who benefit are the lawyers.”