Promised Boeing tax breaks ruled illegal in past

OLYMPIA — Gov. Jay Inslee’s push to extend tax breaks to the Boeing Co. in hopes of landing the 777X program could put the state afoul of international trade rules and bring tariffs on Washington apples from the European Union.

The World Trade Organization ruled two years ago that Boeing received $5.3 billion in illegal U.S. aid, including millions of dollars in tax breaks from the state of Washington for building 787s in Everett.

It’s those same incentives Inslee wants extended as part of a multi-pronged strategy to convince the aerospace behemoth to build the next generation of its popular 777 jetliner in Washington.

“If Boeing decides to build the 777X and its carbon fiber wing in Washington, I believe those incentives should be extended through the anticipated life of the airplane — to 2040,” Inslee said in a speech Wednesday in Everett. The tax breaks are set to expire in 2024.

Aviation industry consultant Scott Hamilton cautioned Thursday it could lead to a new round of battles over subsidies and economic warfare with the European Union, which lodged the original WTO complaint against the U.S. and Boeing.

“As long as the 787 tax breaks were declared to be illegal, it is a risk to extend them to construction of the 777X or any new airplane,” he said.

The WTO has found Boeing and Airbus benefitted from illegal government subsidies and ordered each to make changes. The U.S. and the European Union, which is accused of giving Airbus $20 billion in aid, appealed their respective decisions.

Last year, each told the WTO they had taken steps to comply. But the U.S. and EU are accusing each other of not being in compliance and want to be allowed to impose trade penalties on each other’s companies.

Though the WTO, a Geneva-based arbiter of international trade, has no direct enforcement power it can allow each to take such steps.

And those penalties don’t have to be on airplanes, Hamilton said.

“The whole thing is silly in my view. But if the EU puts tariffs on apples then the U.S. could put tariffs on French wine,” he said.

Inslee doesn’t see it as a problem.

“The U.S. position is that we have complied with the WTO ruling with respect to the Washington (business &occupation tax) reduction,” said David Postman, Inslee’s communications director.

“The case continues to be adjudicated, but the United States position is that earlier rulings did not require any adjustment to the B&O aerospace rates,” he said. “Meanwhile, we await the WTO determination of whether the EU has complied with the WTO rulings against them in regards to Airbus.”

The WTO has not set a time frame for determining if the U.S. and EU are in compliance.

Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com