A World Trade Organization (WTO) panel has ruled that upwards of nearly $6 billion of prior tax incentives provided to Boeing improperly excluded foreign competition. According to a report by the Associated Press, these incentives that were set to be awarded between 2024 and 2040 apply to the production of the wings to be part of Boeing’s new 777x wide-body aircraft.
In late 2013, Boeing issued RFP’s among multiple U.S. states seeking proposals to source final production and assembly of the new 777x aircraft, which is being designed to carry upwards of 400 passengers on long-haul flights. At the time, Boeing’s threat to source design engineering and production outside of Seattle was part of an effort to seek supplemental longer-term concessionary agreements from various labor unions on longer-term wage and benefit costs. Lobbying efforts were also initiated with the State of Washington which resulted in a package of tax and other incentives valued at $9 billion through 2040 to keep the bulk of the 777x program activities in the state.
This development represents the latest round of commercial aircraft related trade disputes among the United States and the European Union with Boeing and Airbus being the major accusers. The EU voiced its concerns to the WTO over the State of Washington’s tax incentive benefits to Boeing shortly after they were announced, claiming that a total of $8 billion in incentives were prohibited subsidies and needed to be rescinded by the WTO.
In its most recent ruling, a WTO panel opted to deny the overall EU claims, but did focus on the specific incentives related to the aircraft’s wing production. The Financial Times reported that this is only the fifth time in the WTO’s history that it has defined a subsidy as “prohibited.” Two months ago, the WTO found that the EU had failed to unwind billions of dollars in unlawful subsidies to Airbus. That ruling could allow the U.S. to impose tariffs on European goods.
A statement from the EU Trade Commissioner indicated: “We expect the U.S. to respect the rules, uphold fair competition and withdraw these subsidies without any delay.” Boeing on the other hand indicates it will appeal the ruling and again characterized Airbus as being non-existing without “$22 billion in illegal subsidies from the EU.”
This ruling comes on the immediate heels of the unexpected election of Donald Trump as President–Elect of the United States, with a platform for the U.S. to become more hard lined on global trade policies. That will likely amplify the rhetoric and subsequent actions related to this recent WTO ruling.
The battle among both aircraft manufacturers on opposite sides of the ocean has been long noted as the most contentious rivalries involving global trade and the overall sales of commercial aircraft among multiple foreign countries. All came to a head in 2011 when the WTO ruled that both companies had collected billions in unlawful assistance and incentives. In the wake of a rising threat from China’s heavily subsidized aircraft sector, Airbus CEO Enders has since called on his U.S. rival to initiate talks on a new global settlement for government support which would benefit both sides of the Atlantic.
The announcement further comes on the heels of the sudden departure of Boeing’s overall head of the Commercial Aircraft business unit to be replaced by a General Electric Aerospace executive. Business media reports regarding this sudden senior executive move point to deep animosity among Boeing’s labor unions over the process of 777x production sourcing and ultimate plant selection.