Termination of Washington State Tax Break Eliminates Any Basis for EU tariffs
Washington, D.C. – The United States notified the World Trade Organization (WTO) today that it has fully complied in the dispute brought by the European Union (EU) regarding U.S. subsidies to Boeing. In April 2019, the WTO found that the Washington State Business & Occupation (B&O) tax rate reduction continued to breach WTO subsidy rules. At that time, the EU was unsuccessful on the remainder of its challenges to 29 state and federal programs alleged to harm Airbus.
Washington enacted Senate Bill 6690 on March 25, 2020, which eliminated a preferential tax rate for aerospace manufacturing. The removal of the subsidy fully implements the WTO’s recommendation to the United States, bringing an end to this long-running dispute.
“With Washington State’s repeal of this relatively minor tax reduction, the United States has fully implemented the WTO’s recommendation, ending this dispute,” said U.S. Trade Representative Robert Lighthizer. “This step ensures that there is no valid basis for the EU to retaliate against any U.S. goods. For more than 15 years, the United States has called on European governments to end their illegal aircraft subsidies. We will continue to press the EU to negotiate a resolution that respects the WTO’s findings.”
In an ongoing arbitration, the EU is seeking countermeasures of approximately $10 billion per year. Most of that amount is attributable to the Washington B&O tax rate reduction that Washington has now repealed. Moreover, a substantial portion is based on aeronautics R&D measures that were not found to violate WTO rules in the compliance proceeding, and therefore, cannot serve as a basis for countermeasures. Accordingly, there is no valid basis for the EU to retaliate against any U.S. goods in this dispute.
After many years of seeking unsuccessfully to convince the EU and four of its member States (France, Germany, Spain, and the United Kingdom) to cease their subsidization of Airbus, in 2004 the United States brought a WTO challenge to EU subsidies. The EU responded by challenging what it claimed were even larger subsidies to Boeing by the United States.
Two separate WTO panels addressed the claims brought by the United States and the EU, respectively. The two processes resulted in two very different sets of WTO findings and subsequent respondent actions.
The U.S. Claims Against the EU
In 2011, the WTO found that the EU provided Airbus $17 billion in subsidized financing from 1968 to 2006, and that European “launch aid” subsidies breached WTO rules because they were instrumental in permitting Airbus to launch every model of its large civil aircraft, causing Boeing to lose sales of more than 300 aircraft and to lose market share throughout the world.
In response, the EU removed two minor subsidies, but left most of them unchanged. The EU also granted Airbus more than $5 billion in new subsidized “launch aid” financing for its A350 XWB family of aircraft. The United States filed a complaint in March 2012 alleging that the EU not only had failed to comply with the WTO’s findings but had further breached WTO rules through the new subsidized financing for the A350 XWB.
The WTO compliance panel and appellate reports found that EU subsidies to high-value, twin-aisle aircraft continued to cause serious prejudice to U.S. interests. The reports found that billions of dollars in launch aid to the A350 XWB cause significant lost sales of Boeing 787 aircraft. The reports also found that subsidies to the A380 continue to cause significant lost sales of Boeing aircraft, as well as impedance of exports of Boeing very large aircraft to the EU, Australia, China, Korea, Singapore, and UAE markets.
In 2018, the United States requested authority to impose countermeasures commensurate with the adverse effects that the EU subsidies continued to cause. The EU challenged the U.S. estimate, and a WTO arbitrator found that the annual adverse effects to the United States amounted to $7.5 billion per year. The United States imposed countermeasures in October 2019, consistent with the WTO’s authorization.
The EU Claims Against the United States
The EU’s original 2004 complaint alleged that the United States provided unlawful subsidies to Boeing. In that dispute, the WTO found that the United States provided Boeing with $3.2-4.3 billion in subsidized research and development funding, certain federal tax benefits, and the Washington State preferential B&O tax, with far more limited market effects than the EU’s subsidies to Airbus, which enabled launch of entirely new aircraft programs.
In response to the WTO’s findings, the United States modified the research and development funding and revoked much of the tax benefits, which in its view removed any adverse effects to the EU from Washington B&O tax rate reduction. The EU then filed a compliance challenge in October 2012 alleging that the United States failed to comply with the findings against it. The WTO compliance panel issued a report in June 2017, which rejected 28 of the EU’s 29 claims. The appellate report likewise found only that the Washington B&O tax rate reduction continued to cause adverse effects to Airbus. The EU subsequently asked a WTO arbitrator in 2019 to determine the level of countermeasures it could take in response to U.S. non-compliance. The decision in the arbitration is expected later this year.