Airbus, Boeing claim victory in today’s WTO ruling over Washington State tax breaks

Nov. 28, 2016, © Leeham Co.: Airbus claims that in a huge blow to Boeing and Washington State, the World Trade Organization (WTO) ruled today that the $8.7bn tax subsidy package Gov. Jay Inslee and the state Legislature approved for the 777X program is a “prohibited subsidy.”

This is the most onerous finding of illegal subsidies under WTO rules, and one that is rarely determined.

Boeing said the WTO “today rejected virtually all of the European Union’s challenges to the Washington state tax incentives” and declared a “complete victory.”

If the European Union placed sanctions on Boeing, all these countries would be involved in penalizing Boeing. Click on image to enlarge

If the European Union placed sanctions on Boeing, all these countries would be involved in penalizing Boeing. Click on image to enlarge

Dueling statements

The statements from Airbus and Boeing are so at odds that they don’t appear to be reacting to the same WTO decision.


Today’s report from the World Trade Organization (WTO) Panel (DS487) confirms that the United States has ignored international trade rules by permitting illegal subsidies to Boeing, this time targeted at the 777X aircraft,” Airbus said in a press release touting the “knockout blow” to Boeing. “The [WTO] Panel found Washington State’s multi-billion dollar subsidy regime for Boeing to include “prohibited” subsidies, which in the Panel’s words belong to “a special category… which Members have deemed to create such trade distortions that they are proscribed,” because they are “specifically designed to affect trade.”


“Today’s decision is a complete victory for the United States, Washington State and Boeing,” said J. Michael Luttig, Boeing’s general counsel.  “The WTO found in September that Airbus has received $22 billion in illegal subsidies from the EU and that without these subsidies neither Airbus itself nor any of its airplanes would even exist today.  By contrast, in rejecting virtually every claim made by the EU in this case, the WTO found today that Boeing has not received a penny of impermissible subsidies.”

Washington’s $8.7bn in tax breaks were specifically tied to the 777X, the WTO found, in violation of its rules, according to Airbus.


Airbus predictably declared victory. So did Boeing.

Airbus, on the defensive for 12 years in the original WTO cases, went into full-court press to declare this a clear win.


“Now it becomes clear why Boeing made such a noisy PR stunt on the occasion of the recent WTO ruling requiring some limited adaptations to the European funding schemes. It was all smoke and thunder to cover up for today’s ruling on prohibited US subsidies,” said Tom Enders, CEO of Airbus Group.

Click on image to enlarge. Customers ordering Airbus and Boeing airplanes make it less likely any sanctions will be placed on either company for fear of pissing off customers. Click on image to enlarge.

Customers ordering both Airbus and Boeing airplanes make it less likely any sanctions will be placed on either company for fear of pissing off customers. Click on image to enlarge.

“Another in a long series of WTO defeats for Boeing: the WTO confirms funding illegality and market distortion by the 777X subsidies,” said Fabrice Bregier, CEO of Airbus Commercial.   “Congratulations, Boeing, you managed to get another free ride to develop your newest aircraft, the 777X. With the past illegal subsidies for the 787, and now the 777X prohibited subsidies, we estimate a loss in Airbus sales of at least $95 billion.  How cynical for you to talk about ‘fair’ trade!”

“Today’s WTO ruling is an important victory for the EU and its aircraft industry,” EU Trade Commissioner Cecilia Malmström said via Airbus. “The panel has found that the additional massive subsidies of USD 5.7 billion provided by Washington State to Boeing are strictly illegal. We expect the US to respect the rules, uphold fair competition, and withdraw these subsidies without any delay.”


“In today’s case, the EU challenged seven different state tax incentives,” Boeing said in a statement. “The WTO rejected entirely the EU’s challenge to six of the seven incentives and rejected most of the challenge to the seventh.  The WTO held only and narrowly that a reduction in Washington state’s Business and Occupancy (B&O) tax rate for future 777X revenues is inconsistent with the WTO agreements.  The WTO threw out all of the EU’s other challenges to various incentive programs and left untouched even the B&O tax rate as it applies to revenue from the other Boeing models produced in Washington state–the 737, 747, 767, 777 (current model) and 787.

“In light of today’s decision and the massive liability that the WTO has found against the EU and Airbus, we expect the EU and Airbus to appeal today’s decision,” Boeing said in its press statement. “After any appeal,” Luttig said, “we fully expect Boeing to preserve every aspect of the Washington state incentives, including the 777X revenue tax rate.”

“[Airbus is] facing sanctions next year and therefore trying to make everyone believe they’ve won a big case against Boeing,” Tim Neale, a Boeing spokesman, wrote LNC in an email. “[T]hey lost on most points, and the value of the 777X B&O tax incentive ruled a prohibited subsidy amounts to $50 million a year. They went for a prohibited ruling because the amount of money is not enough to distort the aerospace market and thus cause harm, which otherwise must be proven before sanctions can be imposed. This latest WTO ruling is in its first round. It can and likely will be appealed, and that process will run another year.”

The Boeing statement didn’t indicate if it will appeal the WTO finding. But Luttig’s statement above certainly hints that Boeing will do so to preserve “every aspect of Washington State incentives, including the 777X….”

 Tax breaks for 777X wing plant, assembly line

Boeing agreed to build a wing production plant in Everett (WA), behind its giant building where all its wide-bodies are assembled (save those 787s in Charleston). Boeing also agreed to assemble the 777X here.

One condition in the agreement was that Boeing could not assemble the 777X elsewhere, unlike this omission in the 787 tax breaks of 2003. Boeing later selected Charleston as the site of a second assembly line. It was this, and several Boeing actions to move jobs out of Washington, that prompted officials to create a close nexus between the 777X and the tax breaks.

777X breaks go beyond 787 deal

Although officials said when they granted the 777X tax breaks that these were merely an extension of the 2003 787 breaks, the 777X breaks are in fact specific to the 777X, the WTO found. Specifically tying them to the 777X proved fatal under the new WTO ruling.

The tax breaks were judged by WTO to be so closely tied to the 777X that only local content can be used, said a person familiar with the decision who declined to be identified because he is not authorized to speak for the WTO. “That’s what makes it prohibited. They’ve been given money that’s not available to anyone else.”

The 787 tax breaks were found by the WTO to be illegal under a separate case that involved a wide variety of issues. The WTO determined that Boeing received illegal subsidies from NASA, the US Department of Defense and Washington and Kansas.

The 777X tax breaks granted in November 2013 drew immediate attention from Airbus officials. The EU filed a formal complaint with the WTO, focusing on the prohibited subsidies rules. The narrow scope allowed the case to move ahead quickly, at least by WTO standards. (The broader cases against the US and EU are already 12 years old and still counting.)

LNC warned at the time the 777X were illegal under the original WTO case and the finding the 787 tax breaks were illegal. State officials (and local media) dismissed the warning. State officials said the original finding was under appeal.

Suppliers get tax breaks, but unaffected by ruling

State officials claimed when issuing the tax breaks were available to the broader Washington aerospace industry, not just to Boeing, thus making them legal. The WTO disagreed.

But suppliers who benefited so far don’t have anything to worry about in this ruling. Since only Boeing was named in the complaint and none of the suppliers, the ruling only affects Boeing and not them—unless a separate case were launched naming specific suppliers, an unlikely event.

Boeing reported that it benefitted in 2014-2015 by about $521m  from the tax breaks, which are claimed from the state on an annual basis as work is done, not up front. It’s not clear how much of this is specific to the 777X, though in today’s statements, Boeing says it’s only $50m a year and not until the first 777X is delivered in 2020.

“In 2015, Boeing got tax breaks and credits totaling $305 million — which is 55 percent more than the state estimated the entire aerospace industry would cash in for that year,” The Seattle Times wrote. “In 2014, Boeing alone exceeded the tax-break estimates by 19 percent.”

What happens next?

What happens now that the WTO ruled?

Airbus expects an appeal by the USTR. WTO rules call for a decision on the appeal within 90 days, but it’s common to take longer. Boeing thinks Airbus will also appeal on the points the WTO denied.

What’s also a certainty is that Boeing isn’t going to step up and write a check to repay the $521m received in 2014-2015, plus whatever the benefit has been received this year.

“Boeing never writes checks, Boeing only cashes checks,” one observer told LNC.

Indeed, when the EU filed its complaint against the US/Boeing, following the US complaint against the EU/Airbus, Jim McNerney, then CEO of The Boeing Co., and Jim Albaugh, then-CEO of Boeing Commercial Airplanes, said that if the WTO found Boeing had received illegal subsidies from federal and state governments, they’d step right up and repay the amounts.

The WTO did and Boeing hasn’t.

Appeals by the US of the original complaint continue to grind their way through the WTO process.

Enders, the Airbus Group CEO, called for negotiations.

“I continue to think that the only way out of the ridiculous series of disputes initiated by the US is to agree on a set of globally applicable rules for the support of the civil aircraft industry, which would benefit both sides of the Atlantic,” he said. “The duopoly is no longer the framework of reference in the future. Look at the huge subsidies the Canadian government has granted to Bombardier just recently, look at the upcoming competition from Russia and Asia. Hence we need a global framework, like the one ICAO recently elaborated for aviation CO2 emissions. This WTO battle is a battle of the past which benefits only the armies of lawyers both sides employ for more than a decade.”

A new deal

Boeing’s agreement with Washington provides that if the WTO finds tax breaks illegal, the State must come up with an alternative to replace these tax breaks. The form is not specified.

The Nov. 8 election in Washington included an initiative, I-732, that would impose a carbon tax to reduce pollution. There was an offset in the State’s Business and Occupation (B&O) tax (a tax on gross receipts) in an attempt to make the carbon tax revenue neutral.

Boeing would have major beneficiary of the elimination of the B&O tax.

“[I]f I-732 were to pass, Boeing could no longer be accused of taking special tax breaks. That tax would simply be gone for all manufacturers. Boeing’s B&O bills would be cut to zero,” The Seattle Times wrote.

That would have solved the WTO issue.

Whether this was an attempt to create something to benefit Boeing in lieu of the tax breaks is a matter of speculation. But it’s a moot point. The initiative lost.

Harm to Airbus

Boeing previously outlined the amounts of harm it believes it suffered from $22bn in subsidies it calculates Airbus received.

As with the allegations of harm to Boeing from illegal subsidies by the EU to Airbus in the previous action, the EU claimed harm to Airbus from the 777X tax breaks.

At the time Boeing began offering the aircraft, there wasn’t a 777X or an Airbus equivalent, but this isn’t a key element in determining prohibited subsidies.

The WTO considers whether Boeing could have launched the 777X and what Airbus have offered without the Boeing subsidies.

The WTO looks at the market place at the time. As a consequence of these subsidies, Boeing offered the 777X to airlines rather than the 777-300ER. Airbus would have competed with the A350-1000, a competitor to the -300ER. Airbus doesn’t have a competitor to the 777-9.

The WTO considered potential lost sales for the A350-1000.

“One of the benefits of proving a prohibited subsidies case is that whether or not there are lost sales, it is so illegal that it must be gotten rid of,” says the person familiar with WTO rules.

Status on previous cases

The previous WTO cases have been referenced above.

The US complaint against the EU and Airbus was adjudicated and Airbus was found to benefit from illegal subsidies. However, the US complaint that it received prohibited subsidies was rejected.

The EU and US appealed for different reasons. The WTO appeal decision came down in September, largely affirming the original findings. Both sides again appealed in October. The EU appealed principally on interest rate assumptions used by the WTO on the A350 and A380. The US appealed the rejection of prohibited subsidies complaints.

The WTO ruled that Boeing received illegal subsidies from the US government and from Washington State (the 787 tax breaks). Both sides appealed. The decision on these appeals is due to be handed down next month.

36 Comments on “Airbus, Boeing claim victory in today’s WTO ruling over Washington State tax breaks

  1. Well that’s all perfectly clear.

    By that logic, Germany and Japan narrowly lost WWII.

    • They did. only took a couple decades before it became effective.

      What I do wonder: Are there any insidious connections into the Iran Contra Two ( selling, or not, planes to Iran ) affair.
      The GOP is not completely brainless. Their on first blush completely brainless drive must have some current action in the hairlines.

      There are some other thinly cloaked commerce warfare activities around.

    • By Boeing’s logic German did win the war on all fronts except for a few minor battles like Berlin.

    • Germany did win in the long run. After being utterly destroyed on the battlefield the US spent trillions rebuilding their economy and protecting them from the Soviets.

      • Yeah, sure. condensed altruism. … not.

        Credits from the Marshall plan were a necessity to keep
        US industries from a post war demand collapse.
        ( no “trillions” were hurt in this project 🙂

        The Soviet Union as a foe was a predominantly US creation.

        • China needs to implement it’s own version of the Marshall plan. It’s either that or a big war to get things going again.

        • “The Soviet Union as a foe was a predominantly US creation.”

          Tell that to Poland, Finland, the Baltic states, Hungary, EAST Germany etc…

          The Soviet Union raped these countries who would have loved to had that wicked selfish Marshall Plan!

          • I’d expand my knowledge of history a bit …

            Soviet insight was that especially the US tried to have Germany and the Soviet Union annihilate each other. .. and then “roll up” the remainder. ( Thesis work Valentin Falin. )

            The Soviet Union would never again accept a situation where a foe could reach their heartland.
            A protective belt of aligned states was thus an unnegotiable
            trying to breach that ( stationing Jupiter in reach of Moscow ) directly lead to the Cuba missile lesson.

          • Thanks I’m not the one in need of education, regardless that was a nice Stalinesque spin on Russian expansionism.

            “Protecting the heartland” well that is rich.They captured Belarus, Ukraine, Poland, Hungary and East Germany.Exactly how many layers of protection do they need?

            Nope, that heartland defense BS is just a cover for their naked expansionist land grabs.

            Funny it’s always the people who didn’t live under the Soviet yoke that are always the biggest ingrates for their freedom.

          • For a chance look at a map of the area during Tzarist Russia and the following Soviet _Union_ and get an inkling what sovereign nations actually existed in the region and in that timeframe.

          • I was talking about the entire history of Russia, not just the Soviet Union era. DUH

            Ask the Ukraine how the Soviets have territorial ambitions!

  2. The WA state tax structure is regressive and unfair just as much as tax breaks. Will the WTO fix that? The legislature and the people of WA determine how wisely or poorly they run the economy, and are sovereign from outside powers. The state budget is an endless list of special things.

    How would the WTO make the whole world fair? The same health care rules and food and housing rules across the globe for the workers who make the products that are traded? Sure, good luck with that.

  3. In short, Reimbursable Launch Investment (RLI) loans — i.e. coined “launch aid” and used as a misnomer by Boeing/USTR etc. — was ruled by the WTO to be an “Actionable Subsidy”, as the terms of some of the RLI loans granted to Airbus were too favourable. The appeal process established, apparently, that WTO has unequivocally ruled that repayable loans in themselves are not a “Subsidy”.

    In contrast, the latest WTO ruling has establised, apparently, that the tax breaks granted to Boeing by Washington State is a “Prohibited Subsidy”. I’ll certainly be wishing Boeing/USTR “good luck” trying to repeal that one. 😉

    • Well contrary to conventional Wisdom, it does prove there is Free Launch (at least in Boeing and Airbus world!)

      Ok, not to deal with Alabama and all is well again.

  4. How’s the WTO doing with those water quality rules in Mexico or Brazil? Are they equal to WA state?

  5. Correction to EC membership table
    Double entry for Ireland and Slovenia omitted
    Yours pedantically….

  6. Pingback: WTO Finding: Boeing’s 777 Project was Illegally Subsidized by State Legislature | Aviation Impact Reform

  7. I have to say it’s very careless, or possibly brazen, of Boeing to set up their subsidies so they are formally linked to meeting local content targets (the “prohibited” subsidy, rather than “actionable” subsidies that merely distort trade). It’s a serious violation of WTO rules and completely avoidable.

    • The WTO instrument has been blunted and thus lost its appeal for the US.
      They will ignore it henceforth similar to what happened to the UN.

      Overall we see a move to brazen partisanship at all levels of international activities. no cosmetics, Totaler Krieg.

    • FF:

      Well Boeing does have a track record on this.

      The reasons cited to open up the Charleston plant was because of the Union.

      That is a no, no in US bargaining law.

      Its supposed to read “For Business Reasons” even through we all know its to punish the union.

      Otherwise it is and was actionable before the NLRB as illegal and Boeing had to settle up on that (never went to court)

      This is just another flub in a series of flubs (remember the Cowering Workers?) Sorry guys, just kidding.

    • That is not Boeing’s Problem but rather Washington State.
      Boeing is laughing all the way. They know that it is highly unlikely that any sanctions will come out of this and if so, it could be levelled at a totally different industry or sector of the economy.

  8. Firstly, not surprise, it it? Secondly, what does Washington state do to re-write these subsidies, esp as it appears that voters won´t co-operate with a new tax structure to facilitate them? Voters are tireed of tax breaks anyway. Thirdly what will the Donald do? Lastly, but nobody seems to have noticed, is we seem to have a price for 777-X development, north of 9 bn. There has been plenty of speculation but this is the most solid info I have seen. That means each aircraft sold has a 30 million subsidy and I hate to think of the effect on Boeing´s bottom line if they can´t get their subsidy back somehow.

  9. Aren’t the US happy that they have Trump as their next President? He won’t give two stuffs about this. At least Boeing will be pleased. Might this mean that Airbus could get kickbacks from Alabama for their new middle market narrowbody sometime in the future? Fasten seat belts welcome to the new “me me me” world order

  10. I always was amazed by people capable of ignoring / denying the repayable and non repayable difference between the subsidies both sides get.

    • I am consistently surprised by the willful ignorance of the way U.S. state and local tax breaks work for both domestic and international companies. From the state’s perspective, the 777X tax breaks are all about competition between WA and RTW states, and not at all about competition with Airbus.

      Not that I expect Airbus, or its partisans to reach for an equitable presentation of this nuance, but the fact is that the very same levers are available to, and usefully applied by, European companies, including Airbus, locating work in the U.S.. The WA tax breaks just look enormous due to the very high price the work siting market places on unwillingness to strip workers of a meaningful right to organize.

      • Boeing accountants dont care which entity hands them the money, just as long as they get it. WTO doesnt care either, so your argument falls a bit flat.
        International trade rules are a mine field, but the obligation is on Boeing to make sure its compliant.

      • “I am consistently surprised by the willful ignorance of the way U.S. state and local tax breaks work ..”

        IMU the internal workings of the US are internal and are therefore not relevant here.
        Maybe the federal government has to align the local administrations more forcibly?

        • You still dont get it. The issue is Boeing taking the money, it doesnt matter which state entity that gives offers it.

          The remedy has been laid out- pay it back, not that it will happen.

      • Just seeking clarification; so if say, the UK were to hand Airbus X billion via the South Gloucestershire Council to ensure A350 wing production stayed in Filton, you’d be OK with that?

        • Sorry, I wasn’t clear. I am not okay with any of it. I think it is a tragedy that our courts and legislatures have embraced this dynamic where companies can dictate their own taxation and regulation structure by playing regions against each other, I also do not have a problem with the WTO’s ruling.

          My issue is with rhetoric only.

          I just think you are missing the point, if you really think this is primarily a Boeing versus Airbus issue, or that Airbus could not or has not availed itself of the same leverage in this country with the same basic results.

        • The point here is Airbus would be, and if US responded it might be with a tax on Irish Wiskey, so Filton woudn´t care, though the South Gloucestershire tax payers might.

  11. Strangely, no word from Loren B Thompson nor any fresh “research” from the Lexington institute

    • Their customers are .in turmoil. no decission who to shoot first.

      The new environment will require a completely new set of bullshit bingo vocabulary.

      Expect no immediate reaction.

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