* Washington tax break for 777X is prohibited subsidy - WTO
* EU says aid worth total $5.7 bln, Boeing says $50 mln/year
* Europeans claim Boeing fell into trap of its own making
* Boeing confident ruling will be reversed on appeal
(Adds background, details, shares)
By Tim Hepher and Tom Miles
GENEVA, Nov 28 The World Trade Organization
(WTO) ruled on Monday a tax break from Washington state to help
Boeing develop its new 777X jetliner was a prohibited
subsidy, in a setback for the U.S. planemaker as it eyes victory
in a parallel case against Airbus.
The WTO said the subsidy came in the form of a renewed cut
in Washington state's main business tax for aerospace agreed in
2013, when Boeing was considering where to base assembly of the
latest member of its long-haul jet family.
It is the third swathe of taxpayer support for Boeing or its
European rival Airbus faulted by the WTO in a record
transatlantic trade spat dating back 12 years, and involving
mutual accusations of tens of billions of dollars of aid.
The ruling, which can be appealed by either side, comes as
the United States ponders the first sanctions against the
European Union in more than a decade over earlier subsidy
rulings against Airbus.
The WTO did not give a value for the banned aid in its
latest ruling, but the EU estimated it at $5.7 billion out of an
$8.7 billion tax package in Washington, where most Boeing
factories are based.
Airbus said the measures had cost it $50 billion in sales.
Boeing said the aid in question would only kick in from 2020
and would be worth $50 million a year, a fraction of the total
amount at stake in the world's largest trade dispute.
The WTO backed EU claims that another six measures provided
subsidies to Boeing, but rejected European arguments that these
fell into the most toxic category being reviewed by its panel.
It urged the United States to withdraw the prohibited
subsidy in 90 days, but did not say how this should be done,
prompting immediate discord between U.S. and European
representatives about how much the planemaker would have to give
up and when.
Seizing on previous U.S. statements that Airbus subsidies
originally deemed prohibited - but later watered down on appeal
- should be repaid to taxpayers, European sources said Boeing
would now have to forego billions of dollars in aid.
They also zeroed in on "program accounting" methods used by
Boeing, which they said had already allowed it to factor in the
future support for the 777X even before money had been received.
Under the same system, Boeing would have to adjust its
accounts sooner rather than later to reflect new risks resulting
from the WTO finding, they argued, in what would be the first
direct impact of the marathon case on investors.
CONFIDENT ON APPEAL
The European Commission urged the United States to remove
the prohibited aid "without delay".
Boeing officials and lawyers, however, played down the
prospect of having to pay back any support, noting there was no
money to discuss until deliveries of the new jet start in 2020.
They said they were confident the ruling would be overturned
on appeal and insisted the tax breaks were dwarfed by $22
billion in subsidised loans by European governments to Airbus,
adding these could spark U.S. retaliation within a year.
Investors, too, seemed sceptical about the prospect of any
near-term financial hit, sending Boeing shares down just 0.3
percent, in line with the market.
"We expect little material impact on either Boeing or Airbus
from WTO rulings," Bernstein analysts said in a note.
On paper, the ruling is however seen as a step backwards for
the United States because the WTO had earlier ruled that a
previous version of the same tax breaks had fallen into a weaker
category of subsidies, which the Geneva watchdog treats less
Under WTO rules, subsidies that are explicitly tied to
exports or, in this case, the use of local content are banned.
European officials argue Boeing fell into a prohibited
subsidy trap of its own making when state lawmakers insisted on
locking Boeing into Washington more clearly than before, after
Boeing accepted earlier tax breaks only to move work elsewhere.
In 2013, Washington lawmakers extended the tax breaks from
2024 to 2040 but said they would end support for any new version
of jet if its body or wings were assembled outside the state.
(Reporting by Tim Hepher and Tom Miles; Editing by Mark Potter)