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A giant autoclave is ready to "cook" parts for the Boeing 777X wings. (Credit: Boeing)
A giant autoclave is ready to “cook” parts for the Boeing 777X wings. (Credit: Boeing)

In the latest chapter of a years-long legal battle, the World Trade Organization says Washington state’s tax break for production of the Boeing 777X jetliner runs counter to international trade rules.

“We expect the U.S. to respect the rules, uphold fair competition, and withdraw these subsidies without any delay,” Cecilia Malmström, the European Union’s trade commissioner, said in a statement issued after today’s ruling.

However, U.S. officials and Boeing executives signaled that the battle would continue. The fight over the tax breaks is part of a larger dispute between the Boeing Co. and its European rival, Airbus, with U.S. and EU officials in the middle.

Boeing’s general counsel, J. Michael Luttig, went so far as to claim in a statement that today’s ruling was “a complete victory for the United States, Washington state and Boeing.”

The way Luttig saw it, the WTO rejected “virtually every claim made by the EU in this case” and found that Boeing “has not received a penny of impermissible subsidies.”

The ruling focused on the effect that tax incentives would have once 777X production starts at Boeing’s Everett plant in 2020. The EU complained that Boeing would receive $5.7 billion in subsidies due to the extension of the tax break. But Boeing said the incentives would amount to no more than $50 million a year, or $1 billion between 2020 and 2040.

The WTO said the reduction in Washington state’s business and occupancy tax, known as the B&O tax, violated trade rules because it was contingent on producing the wings and conducting final assembly of the wide-body 777X planes in Washington state. That would constitute an illegal restraint on imports, according to the ruling.

Today’s ruling is certain to be appealed, just like the other WTO rulings in disputes between Boeing and Airbus. “After any appeal, we fully expect Boeing to preserve every aspect of the Washington state incentives, including the 777X revenue tax rate,” Luttig said.

In September, the WTO ruled against Airbus in a different dispute involving $22 billion in loan subsidies. If the parallel disputes remain unresolved, there’s a chance that the United States and the European Union could hit each other with billions of dollars’ worth of tariffs.

But that’s not likely to happen anytime soon. For now, U.S. trade officials say they’re consulting with Washington state officials on how to proceed. One backup option could be to revise the legislation setting up the tax break, but it’s more likely that the issue eventually will be rolled into a farther-reaching U.S.-European settlement – or merely ignored.

“This case is a small fraction of the overall aerospace dispute, on which the WTO has found overwhelmingly in the United States’ favor,” Matt McAlvanah, a spokesman for the U.S. Trade Representative, said in a statement.

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