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WTO rules that aid from Everett and state for Boeing was illegal

Ruling could affect whether states offer future tax breaks

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By Michelle Dunlop
Herald Writer
In a ruling likely to be appealed, the World Trade Organization found that the Boeing Co. received $5.3 billion in illegal U.S. aid, including millions of dollars from Washington state and the city of Everett.
The WTO made its finding public Thursday, after previously providing initial copies of its verdict in January to U.S. and European Union trade representatives. Airbus had filed the complaint against its commercial rival, Boeing, with the help of the European Union. Boeing and United States already lodged a complaint about illegal funding given to Airbus by European governments.
The release of the ruling Thursday is the latest development in a six-year contest and will likely next go to a WTO appeals panel.
Airbus welcomed the ruling, saying that the WTO had "publicly condemned the United States for giving Boeing massive illegal subsidies that caused Airbus to lose $45 billion in sales."
Boeing acknowledged it got $2.6 billion of illegal U.S. funding, but said that pales in comparison to $20 billion of "illegal Airbus subsidies." Boeing was referring to the WTO ruling on Airbus, which was issued last year. That ruling has not been made available to the general public and was appealed by Airbus.
Here in Washington state, where Boeing received millions of dollars in illegal aid, officials say they'll review the WTO case carefully.
The state and the city of Everett dangled tax breaks and other incentives to land Boeing's original 787 Dreamliner line back in 2003. Although it was not included in Airbus' case against Boeing, South Carolina also offered Boeing incentives when it won the second 787 line in 2009.
With an all-new replacement plane for Boeing's Renton-built 737 expected to be announced this year, state and local officials will have to mull what can be offered to win production of that plane in light of the WTO's ruling.
The WTO dismissed several of Airbus' claims relating to Washington and Everett.
For example, the WTO said the European Union failed to demonstrate how the state's expansion of I-5 and the Boeing freeway could be considered a subsidy. The trade organization similarly ruled the construction of a barge pier near Mukilteo and a larger terminal used by Boeing at the Port of Everett were not illegal handouts to Boeing.
State tax incentives and waived landing fees at Paine Field for Boeing's 747 Large Cargo Freighter, which transports sections of the 787 from around the world to Everett, were found to be OK by the WTO.
However, the WTO did take issue with a $2.2 million reduction in business and occupation taxes for Boeing by the city. The EU alleged if those tax breaks continue through 2023, Boeing will have received over $67 million in unfair incentives.
Washington state also was deemed to have given Boeing roughly $13.8 million in unlawful tax incentives for business and occupation taxes.
Lastly, the WTO faulted Washington for creating the Employment Resource Center for Boeing worker training. The WTO estimated the subsidies for the center at $11 million.
Gov. Chris Gregoire said it's unclear what the effect of the WTO's ruling will be on Washington, given that an appeal by the U.S. is imminent.
"It's also important to remember that U.S. obligations under the World Trade Organization agreement apply to all states," Gregoire said, perhaps referring to what's expected to be a tough competition to land the 737 replacement line.
Airbus also has a new aircraft program in the A350. Boeing's general counsel J. Michael Luttig called on Airbus to finance the new A350 program without government launch aid.
"Airbus can, and now must, develop its products without illegal government subsidies," Luttig said.
The Associated Press contributed to this report.
Boeing incentives
OK, WTO said:
•State work on I-5 and the Boeing freeway; construction by the Port of Everett of a barge facility and larger terminal.
Paine Field waiver of landing fees for Boeing's 747 Dreamlifter.
State tax incentives related to the Dreamlifter.

Illegal, WTO said:
•A $2.2 million building and occupation tax break given to Boeing by Everett.
The founding and operation of the Employment Resource Center which the state established for Boeing worker training. The WTO estimated the subsidies for the center at $11 million.
Business and occupation tax breaks worth roughly $13.8 million from the state.
Story tags » EverettBoeingAirbus

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