Washington State to ‘Wait-and-See’ on WTO Boeing Ruling

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By Paul Shukovsky

Dec. 1 — Washington state will wait before taking any steps in response to a World Trade Organization ruling that a portion of an $8.7 billion state tax incentive package to The Boeing Co. constitutes an illegal subsidy.

The WTO panel found Nov. 28 that a business and occupation tax cut contingent upon Boeing building the wings for its new 777X plane in Washington is a prohibited subsidy because it requires the use of domestic goods.

Before Washington takes any action, it wants to see how the potentially lengthy WTO appeals process plays out. One state official at the center of international trade issues in Washington, which is the most trade-dependent state in the U.S., said the matter likely will be resolved as part of an overarching resolution to alleged illegal aircraft subsidies, which includes billions of dollars in subsidies made by European Union nations to Airbus.

“Three years ago, lawmakers passed, on a bipartisan basis, a package of legislation that resulted in the Boeing 777X being assembled in Washington state, ensuring the health of the Washington aerospace industry and sustaining jobs in our state,” Washington Gov. Jay Inslee (D) told Bloomberg BNA in a Nov. 30 e-mail. “That was the right thing to do for our state’s economic future and it still is.”

‘Too Early to Tell.’

Inslee, responding to a threat from the Boeing Company to locate its pending 777X aircraft program outside of Washington, pushed through the Legislature in 2013 an $8.7 billion package of tax breaks for Boeing—the richest package of state tax breaks in U.S. history.

“We will continue to work with the Office of the U.S. Trade Representative in Washington, DC, to determine how to respond to the WTO Panel report,” Inslee said Nov. 30. “It is important to note that the WTO Panel rejected the EU’s arguments with respect to six of the seven challenged tax measures. Moreover, 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.”

In dueling press releases and statements, both Boeing and Airbus sought to bolster their positions in what could be a prelude to any negotiations between the E.U. and the U.S.

“Industry specialists suggest that the nearly $9 billion in subsidies provided by Washington State is largely sufficient to cover the entire cost of design and production of the 777X, essentially giving Boeing a “free ride” by offsetting entirely the costs of developing and bringing the aircraft to market,” Airbus said Nov. 28.

Airbus: ‘Repeal the Legislation.’

Boeing spokesman Tim Neale responded: “Airbus put out a lot of huge numbers because they are trying to distract attention away from the case against them. They are going to be under a lot of pressure next year to get rid of launch aid,” which Neale pegged at about $22 billion.

“They are desperately trying to make it look like they’ve had big wins against the United States and therefore we should just sit down and both agree to just walk away from this,” Neale told Bloomberg BNA Dec. 1. “But the findings against the U.S. are minor compared to the findings against them.”

Airbus Group General Counsel John Harrison said in the Nov. 28 release: “The United States has no other option than to direct that Washington State repeal the legislation or amend it in a way that makes it WTO-compliant.”

That isn’t likely to happen any time soon.

‘Who Has a Bigger Stick.’

A long-time Washington state executive branch expert on international trade told Bloomberg BNA Nov. 30: “This is going to get resolved in some sort of negotiated solution. I think part of that is going to be impacted by the value of authorized trade sanctions that the WTO reaches in terms of our offensive case against the EU and the two defensive cases against the U.S.”

“At the end of the day, we’re probably going to have the idea of who has a bigger stick,” said the expert, who agreed to talk on the condition of anonymity. “How does this play out: Does everyone just impose tariffs on each other? I don’t think that’s what we want. Of course, we have an incoming president. So who knows what that means.”

In Washington state—which as of Jan. 1 was home to 78,225 Boeing workers out of a global labor force of 159,469—the political calculus for any legislative measure to amend or repeal the tax preference ruled illegal is difficult at best.

“We could just leave it in place and see what pressures we face in terms of retaliation from the EU and pressure from other interests in the United States,” the expert said. “If other industries in the United States face tariffs from the EU, it’s going to be a hue and cry.”

No Legislative Action Planned

“But I have not heard any talk that we are going to put forth any legislation dealing with the WTO. There’s nothing concrete. It’s early on. This report has just come out. There’s not a lot of appetite to do anything. And there’s really no reason to at this point. There is no imminent threat of tariffs. And either party is going to be reluctant to go after the other right now,” the expert said.

To contact the reporter on this story: Paul Shukovsky in Seattle at PShukovsky@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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