March 28, 2019 / 4:47 PM / 7 months ago

UPDATE 3-WTO says U.S. failed to halt state tax subsidy for Boeing

(Adds comment from U.S. Trade Representative)

By Tom Miles and Tim Hepher

GENEVA/PARIS, March 28 (Reuters) - The World Trade Organization said on Thursday the United States had ignored its request to halt a subsidised tax break for Boeing Co in its main plane-making state of Washington as a 15-year-old transatlantic trade row edges towards tit-for-tat sanctions.

The European Union said the WTO appeal ruling had vindicated its claims that Boeing continued to receive illegal subsidies, but the United States said only one measure, a Washington state tax break worth around $100 million annually, had been found still to violate the rules.

The trade powers have been battling since 2004 over mutual claims of illegal aid to plane giants Boeing and Airbus, with parallel cases generating thousands of pages of findings and dense litigation that put a burden on the already congested WTO.

Both sides have been caught paying billions of dollars of subsidies to gain advantage in the global jet business, and asked to stop or face potential sanctions. Thursday's appeal ruling showed that the United States did not stop all subsidies when asked to do so, echoing an earlier finding against the EU.

The WTO's Appellate Body, effectively the supreme court of world trade, ruled that the business and occupancy (B&O) tax rate reduction in Washington state had significantly cut Airbus sales in five particularly price-sensitive sales campaigns.

"The Appellate Body has now settled this case definitively, confirming our view the U.S. has continued to subsidise Boeing despite WTO rulings to the contrary," European Trade Commissioner Cecilia Malmstrom said in a statement.

But U.S. Trade Representative Robert Lighthizer called the ruling a victory for the United States, since the WTO had found only one illegal subsidy while upholding an earlier rejection of EU claims that Boeing's commercial aircraft programs received over $10 billion in illegal U.S. subsidies.

"This report confirms what every other WTO report on these issues has found: the United States does not provide support even remotely comparable to the exceptionally large and harmful EU subsidies to Airbus," Lighthizer said in a statement.

Boeing said it would support the new decision.

Any sanctions could broadly target industries beyond aerospace, but the impact of the record trade dispute on Boeing and Airbus themselves has so far been modest.

Analysts have long predicted the case would peter out or be settled without a trade war, but the prospect of retaliation is grabbing more attention than before amid global trade tensions.

COUNTERMEASURES

Airbus said Boeing still received a raft of support and urged the United States to negotiate a "fair-trade environment" - a settlement proposal that Washington has so far rejected.

In a technical point, it said the WTO had resurrected a wider group of U.S. subsidies which could be challenged later.

But Boeing said the slate had now been wiped clean of any unlawful subsidies in the United States, except for the Washington state measure which it agreed would now be amended.

"We trust that our example will prompt Airbus and the European Union to immediately bring themselves into full compliance with the substantial rulings against these parties by the WTO," Boeing said in a statement.

In a parallel ruling last year, the WTO said the European Union had failed to remove illegal subsidies for two airplane programmes, the A350 and the A380 - the world's largest airliner which Airbus has since decided to stop building due to poor sales.

That part of the row simmers on as Airbus argues the case against European government loans for the A380 no longer counts because of its plans to shut production. The United States says the partly unpaid loans continue to damage Boeing indirectly.

The two sides are now in arbitration to decide the size of any countermeasures, starting with a U.S. request for authorisation to impose $11 billion in sanctions on EU goods. (Reporting by Tom Miles and Tim Hepher, additional reporting by David Lawder in Washington; editing by Stephanie Nebehay, Toby Chopra and James Dalgleish)

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