Boeing confident WTO subsidy ruling will be reversed

By Tim Hepher and Alwyn Scott

GENEVA/NEW YORK (Reuters) – Boeing Co <BA.N> expressed confidence on Monday that a World Trade Organization ruling against a Washington state tax break for its 777X jetliner would be overturned on appeal, claiming to have the upper hand in the latest round of a long trade dispute placing it at odds with European rival Airbus <AIR.PA>.

The WTO ruled that a preferential rate on its main aerospace business tax, which was tied to a decision to produce the new aircraft within the state, was a prohibited subsidy and should be withdrawn within 90 days. However, it rejected a similar EU complaint leveled against six other measures.

“In total, the EU claimed that Boeing had received $8.7 billion in subsidies. This claim was rejected by the WTO, which found future incentives totaling no more than $50 million a year to be impermissible,” Boeing said in a statement.

“The WTO found that to date Boeing has received no benefit from the 777X (tax) rate incentive and will not until 2020, because the first airplane will not be delivered until then.”

Both sides have the right to appeal against the ruling. The U.S. Trade Representative said it was reviewing the report together with officials from Washington state.

“After any appeal we fully expect Boeing to preserve every aspect of the Washington state incentives, including the 777X revenue tax rate,” Michael Luttig, Boeing’s general counsel, said in the company’s statement.

Boeing’s external legal adviser on the trade dispute, Robert Novick, co-managing partner of law firm WilmerHale and a former U.S. trade official, said the WTO appellate body had a record of reversing prohibited subsidy findings.

Explaining its decision, the WTO said Washington lawmakers agreed in 2013 to extend and amend existing tax breaks, delaying their expiry from 2024 to 2040, on condition that “a manufacturer” took a decision to place a “significant commercial airplane manufacturing program” there, and then kept it there.

Europe had argued this could only mean Boeing’s 777X.

A WTO panel agreed that this effectively made the aid contingent on placing 777X production including the aircraft’s massive wings in Washington state, but Boeing said any aerospace firm could qualify for the state tax breaks.

Boeing estimated the banned aid at $50 million a year in tax savings, starting when the first 777X jet is delivered in 2020.

“$1 billion over 20 years is not enough to distort the market,” Boeing spokesman Tim Neale said.

The EU Commission estimated the total prohibited aid at $5.7 billion as Airbus called for a new global pact on industry aid.

(Editing by Bate Felix, Greg Mahlich)

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