Boeing asks that its big state tax break be suspended

OLYMPIA — The Boeing Co. has asked state lawmakers to suspend a tax break worth billions of dollars in an attempt to resolve an escalating trade dispute between the U.S. and the European Union, home to rival jet maker Airbus.

A resolution could help reduce trade tensions and discourage retaliatory tariffs that could hurt Boeing and other industries.

Democratic leaders in the state House and Senate announced Wednesday they have introduced legislation to suspend Boeing’s preferential business-and-occupation tax rate, which has saved the company hundreds of millions of dollars since 2003. In 2013, that tax break was extended to 2040, helping convince the company to build the 777X in Everett.

The tax break allows Boeing and other eligible aerospace firms to pay a lower business-and-occupation tax rate. In 2018, Boeing shaved $99 million off its state tax bill.

The preferential rate was a factor in an ongoing dispute between the World Trade Organization, which mediates international trade disputes, and Boeing and Airbus.

The WTO has ruled that both Boeing and Airbus are the recipients of illegal subsidies from their host governments. And Boeing and Airbus have accused each other of failing to take steps to end the disputed subsidies.

By requesting that Washington legislators remove the preferential tax break, Boeing may be hoping to avoid “a ruinous trade war over jetliners,” said Kevin Michaels, managing director of AeroDynamic Advisory, a Michigan-based consulting firm.

“The last thing that Boeing needs are tariffs on its airplanes that are going to Europe,” Michaels told The Daily Herald. “You want to remove as many of the possible catalysts for retaliation as possible,” Michaels said.

Last week the Trump administration said it would impose a 15% tariff on Airbus aircraft beginning March 15, up from a 10% tariff that went into effect in October.

Should that occur, the European Union could impose retaliatory tariffs that potentially target some Washington state exports, including apples, cherries and seafood.

Last March, the World Trade Organization ruled that Boeing received illegal U.S. subsidies via tax breaks from Washington that damaged sales of European arch rival Airbus.

However, except for the relatively small Washington state tax breaks — which the U.S. says come to around just $100 million a year — the ruling found no grounds upon which the European bloc could seek damages from an arbitrator.

In December, a WTO panel likewise faulted the European Union for not ending its subsidies to Airbus.

In a company statement, Boeing on Wednesday said it “applauds the actions today by Washington state leaders to introduce this legislation. We fully support and have advocated for this action. When enacted, this legislation will resolve the sole finding against the United States in the long-running trade disputes between Europe and the United States over government support for the production of large commercial airplanes. This legislation demonstrates the commitment of Washington — and of the United States — to fair and rules-based trade, and to compliance with the World Trade Organization rulings.

“By contrast, the billions of dollars of illegal ‘launch aid’ subsidies that have been provided to Airbus, which the World Trade Organization has repeatedly found to violate global trade rules, stand unresolved. Now is the time for Airbus and the European Union to finally come into compliance by ending illegal launch aid subsidies once and for all and addressing the harm they have caused the United States aerospace industry and its workers,” Boeing said.

Sen. Marko Liias, D-Lynnwood, and House Majority Leader Pat Sullivan, D-Covington, are the sponsors of the legislation to revoke the tax break.

“I appreciate Boeing bringing this to our attention and asking for a legislative solution on this critically important issue for our state’s economy,” Liias said in a written statement.

“We share Boeing’s concern that retaliatory tariffs will hurt not only our state’s aircraft industry, but other Washington-based exporters and family-wage jobs here in Washington. Our goal is to craft sound legislation to appropriately mitigate this international trade dispute.”

Said Sullivan, in his own statement: “We cannot allow regulatory tariffs to damage Washington’s economy, and we’re grateful that Boeing recognizes that the Legislature has to solve this problem. We will be working closely with Boeing and other legislators to protect family-wage, good-paying jobs provided by the aerospace industry and other sectors that will be impacted by tariffs if the legislature does not act this session.”

Commenting on the proposed legislation, Gov. Jay Inslee said: “There is broad agreement in Olympia that we need to act this session to address the WTO issue in order to avoid retaliatory tariffs that would damage not just our commercial aircraft industry, but other important Washington exports.

“The potential negative impact of that is highlighted by the fact that Boeing has said it would like that tax incentive at least suspended until the issue is fully settled with the European Union.

“Lawmakers and I have discussed this and we agree today’s bill is just a starting point. I will be working with the company, its machinists, engineers and others to get this done in a timely fashion.

“We need careful consideration of the issues and precision work on the legislation which involves not just state tax law, but international trade agreements and domestic trade law. “