WTO: Tax cut for Boeing is unlawful

The World Trade Organization (WTO) Panel (DS487) has concluded the European Union request for consultations with the United States with respect to conditional tax incentives established by the State of Washington in relation to the development, manufacture, and sale of large civil aircraft. WTO found that the tax incentives given by Washington State government in 2013, through Engrossed Substitute Senate Bill 5952 (ESSB 5952), are prohibited under its rule.

WTO stated in its report: “Having found that the reduced business and occupation tax rate for the manufacturing or sale of commercial airplanes under the 777X programme is inconsistent with Article 3.1(b) of the SCM Agreement, the Panel also found that the United States has acted inconsistently with Article 3.2 of the SCM Agreement.”

The report of WTO is the follow up of the complaint of EU filed on the 19th of December 2014. EU had challenged seven different state tax incentives. However, the trade organization rejected six challenges and it considered that the EU has not demonstrated the claims.

The WTO then recommended: “Accordingly, 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.”

Commenting on the WTO report, Tom Enders, Chief Executive Officer, Airbus Group, said: “The United States and Boeing picked this fight at the WTO, and today’s ruling is yet another blow for that strategy.”

He added: “Those prohibited subsidies must be withdrawn immediately following today’s historic ruling, meaning that Boeing must give up these massive tax subsidies.”

At the same time, Boeing does not agree to the WTO ruling. In a press statement, the company said that in total, the EU claimed that Boeing had received $8.7 billion in subsidies.  This claim was rejected by the WTO, which found future incentives totaling no more than $50 million a year to be impermissible.  The WTO found that to date Boeing has received no benefit from the 777X rate incentive, and will not until 2020, because the first airplane will not be delivered until then.