Sunday, November 27, 2016

Boeing Faces World Trade Organization Sanctions: Trade body expected to disallow a Washington state tax break connected to the 777X jetliner

The Wall Street Journal
Nov. 27, 2016 1:51 p.m. ET

The World Trade Organization as early as Monday is expected to rule that Boeing Co. has been granted illegal state subsidies for its newest long-range jetliner, according to people familiar with the finding.

The judgment involves tax incentives Boeing will receive from Washington state to build its new 777X widebody plane, the latest round in a long-running dispute between the U.S. and the European Union over support for Boeing and Airbus Group SE.

Aircraft cases take years to resolve before the trade organization but are closely watched as evidence of the effectiveness of international rules. Donald Trump’s election victory and focus on trade are turning a new spotlight on such cases, and sanctions from earlier WTO judgments involving the two jet makers may start to be imposed next year.

The EU almost two years ago voiced concern at the WTO about the support package for the 777X, a revamped version of Boeing’s existing 777 long-range plane. The updated model has attracted more than 300 orders from carriers including Emirates Airline and Deutsche Lufthansa AG.

The EU said Boeing had lined up more than $8 billion in prohibited subsidies for the 777X program and that those subsidies need to be immediately rescinded. U.S. officials have called the $8 billion figure inflated. The WTO isn’t expected to put a value on the tax break it is expected to strike down

The WTO is expected to deny most of the EU claims, but agree that a key income-tax break offered by Washington state represented a prohibited subsidy that would have to be withdrawn, the people said.

Airbus and Boeing for years have accused the other of winning business through illegal government subsidies. Each company contends the other received several billion dollars in financial backing that contravenes international trade rules.

The Geneva, Switzerland-based trade adjudicator in September determined the EU had failed adequately to eliminate subsidies to Airbus that the WTO earlier had deemed illegal.

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. Those tariffs could be placed on goods and services unrelated to aircraft or aircraft parts. The winning side isn’t obliged to impose tariffs.

The subsidy dispute dates back more than a decade. The two sides settled a previous disagreement in 1992, but the U.S. walked away from that deal in 2004, arguing Airbus had an unfair advantage.

The U.S. then brought a case to the WTO, alleging EU member states illegally subsidized the Toulouse, France-based aircraft maker. The EU quickly launched a similar case against the U.S., arguing that the U.S. illegally subsidized Boeing, the world’s No. 1 plane maker by number of aircraft built.

The EU challenged the 777X tax break separately because the program wasn’t launched until the earlier cases were well under way.

The entire subsidy case has been slow to move in part because of its complexity, trade lawyers said. Resolving the issue could take years. U.S. officials expect their ability to impose penalties on Europe as part of the September ruling won’t be achieved until late next year.

The WTO also still needs to rule on whether the U.S. has taken steps to reverse some handouts the trade body previously judged to be in contravention of international trade rules.

The U.S. in September 2012 said it had addressed WTO concerns, though the EU has challenged that assessment. A WTO judgment on that matter is expected next year.

Original article can be found here:

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