EU Files Complaint With WTO About Boeing: EU Says Tax Incentives Provided by State of Washington Broke International Trade Rules

December 19, 2014

By Matthew Dalton Dec. 19, 2014

BRUSSELS—The European Union on Friday filed a complaint at the World Trade Organization alleging that billions of dollars of tax breaks handed to U.S. aviation company


Co. by Washington state violated international trade rules.

The complaint extends a long-running trade battle between the U.S. and the EU over their respective aviation champions: Boeing and

Airbus Group

NV, based in Toulouse, France.

Officials were attempting to find a negotiated solution to the dispute, but Friday’s complaint shows that government policies in the sector remain a source of trans-Atlantic friction.

The European Commission, which manages the EU’s trade policy, said on Friday that the complaint relates to Washington state’s decision in November 2013 to extend a tax-incentives program for Boeing from its original end date in 2024 until 2040. The extension is worth $8.7 billion, a sum the commission said was “the largest subsidy for the civil aerospace industry in U.S. history.”

International trade agreements limit the financial support that governments can give to companies. Panels of judges convened by the Geneva-based WTO have the power to enforce these agreements. Now the U.S. and the EU will have 60 days to negotiate, before a panel is convened to rule on the dispute.

Washington state passed the tax breaks in a bid to keep Boeing from moving the manufacture and assembly of its newest jet, the 777X, to lower-cost states or even other countries. Months later, Boeing agreed to stay put in Washington, but only after wringing concessions from labor unions with a new contract that workers approved with just 51% of the vote.

Alex Pietsch, Washington state director of the Governor’s Office of Aerospace, said in a statement that Gov. Jay Inslee “is aware of the request for consultations [by the EU] and we will continue to work with [the U.S. Trade Representative] on this important issue.” Mr. Pietsch, a key architect of the incentive package and the state’s bid for the 777X work, noted 460 companies in 2013, including those based in Europe who have facilities in Washington, benefited from the state’s tax structure for the aerospace industry.

Tim Reif, the general counsel for the Office of the U.S. Trade Representative, said in a statement that the EU’s new claims “lack any foundation.”

“When the EU is ready to resolve this dispute on the basis of WTO rules, rather than just dragging it out, they will find us ready,” Mr. Reif said.

Fabrice Brégier, who heads Airbus’s jetliner unit, this year

attacked the financial support Boeing had won

from local government authorities. He urged European governments to oppose the package, which he said was worth more than Boeing’s development cost for the plane. Airbus had no immediate further comment.

Boeing said in a statement that the tax breaks aren’t “market-distorting subsidies. They are available to all aerospace companies, including Airbus and its suppliers.”

The complaint is the latest in a tit-for-tat, trans-Atlantic battle that has gone on for more than a decade. In 2004, the Bush administration withdrew from an agreement with the EU covering government support for the two companies.

The U.S. then brought a WTO complaint against the EU claiming that cheap financing provided by governments to Airbus—known as “launch aid”—violated WTO rules. The EU soon responded with its own complaint challenging a suite of subsidies it claimed the U.S. gave to Boeing, including tax breaks, support from NASA and research and development funds from the Department of Defense.

The EU previously had tried to challenge the tax-incentives program as part of its existing complaint against the U.S. over Boeing, but the WTO rejected that effort.

Panels of WTO judges have ruled in both previous complaints that the U.S. and the EU have given illegal subsidies to Boeing and Airbus. After appellate panels upheld much of the initial rulings, both sides said the other wasn’t respecting the rulings and asked the WTO to impose billions of dollars in trade penalties on the other side.

Yet U.S. and EU officials also said they would attempt to negotiate a solution rather than embark on a process of enforcing these rulings.

Those efforts have yielded little fruit, a senior EU official said.

“Everyone agrees that this can only be settled out of court,” the official said. “But right now we have the impression that there is no appetite for this from the U.S.”

—Jon Ostrower and Robert Wall contributed to this article.