An illustration of the planned Boeing 777X. (Boeing Co.)

An illustration of the planned Boeing 777X. (Boeing Co.)

WTO: State tax breaks for Boeing are prohibited; now what?

EVERETT — The World Trade Organization ruled Monday that the Boeing Co. received illegal subsidies from Washington to put 777X assembly here and called for the support to end within a few months.

But don’t expect anything to change anytime soon — if at all.

It is the latest twist in a 12-year-old legal melodrama between the United States and the European Union on behalf of the world’s two biggest airplane makers — Boeing and its European rival, Airbus Group. Both sides accuse the other of flagrantly violating international trade accepting huge sums of illegal government support.

Trade disputes brought to the WTO typically end in a settlement negotiated by the countries involved, or with aggrieved countries imposing tariffs or other trade restrictions with the WTO’s blessing. The international group adjudicates disagreements but does not enforce the outcomes. That is up to member countries.

The significance of Monday’s ruling could be overshadowed next year when the WTO is expected to rule on a related complaint from the EU concerning a much larger amount of indirect public support for Boeing.

Both Airbus and Boeing claimed victory following the WTO’s latest decision, which rejected most of the allegations in the EU’s complaint from 2014. The 28-member bloc charged that tax breaks passed by Washington in 2013 amounted to prohibited subsidies for Boeing. The tax incentives were contingent on Boeing assembling the 777X and making the airplane’s advanced composite-material wings in Washington. Boeing chose Everett.

Airbus and E.U. leaders used the ruling to savage Boeing, Washington and the United States.

“The WTO has for the first time in these disputes identified prohibited subsidies to Boeing for the 777X, condemning as the worst form of trade violation a full aircraft development illegally financed by taxpayer money,” said John Harrison, general counsel for the Airbus Group.

The European airplane maker claims that illegal support for Boeing has cost the company $95 billion.

The two sides in the dispute couldn’t agree on how much money was at stake in Monday’s ruling. Airbus and EU officials said it is $5.7 billion in illegal support. Boeing and U.S. officials came up with $1 billion.

“That’s still a lot of money,” but nowhere near the $8.7 billion that the EU alleged in its complaint, said Tim Neale, a Boeing spokesman. The EU has “thrown a lot of accusations against the wall to see what sticks, and they’ve won very little.”

A Geneva-based trade official told The Associated Press that the ruling addressed only the legality of the tax breaks and did not calculate the financial benefit for Boeing. The official spoke on condition of anonymity because he was not authorized to speak publicly about the matter.

Either way, Boeing has not received any benefit yet. The 2013 tax breaks in question do not go into effect until 2024. They are based on tax incentives Washington passed in 2003, when Boeing was publicly wondering where to build its 7E7, which became the 787 Dreamliner.

In a prepared statement, Gov. Jay Inslee lauded lawmakers for approving the package of legislation in 2013 with near unanimous votes.

“That was the right thing to do for our state’s economic future and it still is,” he said. It is “too early to tell what actions the state might undertake in response to the Panel report as it is likely to be appealed” by the U.S., a process which could take up to two years.

The Office of the U.S. Trade Representative is reviewing the ruling, said Matt McAlvanah, a spokesman for the agency.

If it does appeal, it likely would do so in December, he said.

While this dispute spans Republican and Democratic presidential administrations, it is not clear how President-elect Donald Trump will handle it. As a candidate, he attacked U.S. trade policy — and the belief in free trade that has underpinned it for decades — as weak and foolish. He called the WTO “a disaster” and threatened to pull out.

However, Trump also told voters he would use the WTO to bring complaints against China and other trading partners.

The U.S. Trade Representative’s office has not received any word from the incoming administration, McAlvanah said.

Trump’s transition team did not respond to a request for comment Monday.

The WTO ruled in September that the EU is still giving prohibited support to Airbus despite a 2011 ruling against the subsidies. The decision put the amount of illegal aid at $22 billion. The EU appealed that ruling in October.

The international group is expected to rule in the first half of 2017 on whether the U.S. has complied with a WTO ruling in 2012 that Boeing has received illegal subsidies.

Neither side appears to be in a rush to settle, said Gary Hufbauer, an international trade expert with the Peterson Institute for International Economics, a nonpartisan think tank based in Washington, D.C.

Ultimately, the U.S. and EU will exhaust their legal options, and they will either have to settle or punish each other with trade restrictions approved by the WTO, he said.

“Countermeasures don’t have to apply to aircraft,” he said. “They can apply to cheese, wine, automobiles, whatever.”

The Associated Press contributed to this report.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com. Twitter: @dcatchpole.

Timeline of events

1992: The European Union (EU) and United States negotiate a bilateral agreement to limit public aid for Boeing and Airbus.

2003: Washington passes a tax incentive package to entice Boeing to put its new 787 program in the state.

2004: The U.S. and E.U. file competing complaints with the World Trade Organization (WTO), accusing each other of illegally subsidizing airplane makers.

2005: The U.S. and E.U. unsuccessfully try to negotiate a settlement.

2009: Four European governments pledge to help finance development of Airbus’ new A350 program.

2010: The WTO rules that Airbus received illegal subsidies from the E.U., which appeals the decision.

2011: The WTO rules that Boeing received illegal subsidies from Washington and the federal government. The U.S. appeals the decision.

2011: The WTO appeals panel upholds most of 2010 ruling against the E.U.. The U.S. accuses the E.U. of not complying with the WTO’s initial ruling.

2012: The WTO appeals panel upholds most of 2011 ruling against the U.S. The E.U. accuses the U.S. of not complying with the WTO’s initial ruling.

Dec. 19, 2014: The E.U. files a complaint with the WTO, alleging that Washington’s 2013 tax benefit package illegally subsidizes Boeing’s 777X program.

Sep. 22, 2016: The WTO issues a decision that the E.U. has defied its 2011 ruling that Airbus received illegal subsidies, which, it says, now total $22 billion.

Oct. 13, 2016: The E.U. appeals the WTO’s September ruling.

Nov. 28, 2016: The WTO rules on the E.U.’s 2014 complaint, saying that Washington’s 2013 tax incentives are de facto illegal subsidies.

First half 2017: The WTO is expected to rule on U.S. compliance with the international group’s 2012 ruling that Boeing received illegal aid.

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