Editorial: Avoid damaging trade war over Boeing tax break

By The Herald Editorial Board

What state lawmakers couldn’t claw back, Boeing now appears anxious to give back.

Hoping to avoid damaging tariffs on jets headed to European airline customers, The Boeing Co. has asked the Washington state Legislature to adopt legislation that would suspend a tax break worth about $100 million each year to the company, a deal that was scheduled to continue until 2040.

State lawmakers and officials agreed in 2003 to a 40 percent reduction for Boeing and others in the aerospace industry of the state’s Business & Occupation for the next 20 years, as an enticement to Boeing to build its 787 jets in Everett. Ten years later, that tax break was then extended until 2040, again after Boeing mused about building its next airplane, the updated 777X, outside of Washington state. The tax break was extended and the 777X — like the 787 — is being built at Boeing’s Everett plant.

The tax break came at a significant cost to the state and its taxpayers. At the time of its extension, it was estimated the state would lose as much as $8.7 billion in revenue over the course of the extension. But state leaders, including Gov. Jay Inslee, took the deal because it would keep Boeing and other aerospace production and their jobs in the state and would still deliver about $21 billion in tax revenue between 2024 and 2040.

Even with significant acceptance among state and local leaders and with buy-in from labor unions, there’s been a history of resentment that the deals never tied the tax breaks to any specific guarantee of Boeing workforce levels in the state. That resentment increased after Boeing decided to establish a second 787 assembly line in Charleston, South Carolina, in 2010.

Since then there has been talk and even legislation introduced — although none has ever advanced — to “claw back” Boeing’s tax incentives and tie them to job numbers.

So why would Boeing now want to ditch the lucrative tax break? Because it stands to lose much more under European Union tariffs if the state tax incentive remains. As it continues work to return the 737 Max to service — and weathers heavy losses caused by the airliner’s grounding — Boeing doesn’t need the additional distraction or financial impact of a trade war.

The request — and the legislation that Boeing drafted and submitted to lawmakers — follows the threat of tariffs by the European Union that could follow over a dispute before the World Trade Organization, which settles trade conflicts among nations. The dispute alleges Washington state’s aerospace tax break is an unfair subsidy for Boeing and has disadvantaged Airbus, the Netherlands-based jetmaker and top Boeing competitor.

Airbus isn’t innocent here either; the WTO has ruled that it also has received similarly unfair subsidies from the European Union, to Boeing’s disadvantage. Following a WTO ruling against Airbus in May 2018, the Trump administration obliged by imposing a 10 percent tariff on European-built aircraft late last year, along with a 25 percent tariff on Europe’s agricultural products, including wine and cheese. The tariff on Airbus’ jets is scheduled to increase to 15 percent on March 18.

The company has said it hopes to avoid a “ruinous trade war over jetliners” by seeking a suspension of the tax break, at least until the United States and the European Union can find agreement on such tax incentives for the industry. Both had such an agreement in the 1990s, until Europe allegedly violated the terms of the deal.

Such a trade war would touch more than Boeing and the aerospace industry. The EU has already released a preliminary list of proposed tariffs, targeting products and services exported by Washington state, said the Washington Council on International Trade. Among the goods that the EU could tax are Washington apples, cherries, wine, coffee, salmon, shellfish and software.

“In 2018 alone, Washington state exported $12.2 billion worth of products and services to the EU, second only to China,” WCIT President Lori Otto Punke said in a release. “A new front in the trade war would be tough to absorb.”

Judging by reaction to the legislation request, state lawmakers and Gov. Inslee appear to recognize the need to respond with due speed in suspending the tax break and avoiding stiff tariffs on the state’s exports, whether they’re jets or apples. But there’s opportunity here as well as need for caution.

What’s adopted — if the tax incentives are permitted to resume at some point — ought to seek a better guarantee of jobs in trade for the significant tax breaks the state can provide. And the legislation should also look to assure that any incentives offered won’t lead to charges that Boeing and others are benefiting from an unfair subsidy.

Everett, Snohomish County and the state rely on Boeing as a major employer and significant contributor to the economy. That relationship should continue to be fostered and provided reasonable assistance. As Boeing’s unusual request shows, however, there’s reason to carefully consider what help the state and its taxpayers provide.