Boeing asks for suspension of aerospace tax incentives to resolve WTO dispute

The Boeing Company is asking Washington lawmakers to suspend the the aerospace tax incentives package in an effort to resolve a dispute with the World Trade Organization. The Associated Press reports,

Washington state lawmakers announced Wednesday they will introduce bills, at The Boeing Co.’s request, to suspend the aerospace giant’s preferential business and occupation tax rate until the United States and European Union resolve their long-running international trade dispute.

Democratic Sen. Marko Liias and Democratic House Majority Leader Rep. Pat Sullivan are the sponsors of the companion bills in the Senate and House. The legislation will suspend the 40% tax break that the Legislature adopted for the aerospace industry in 2003 and was expanded in 2013.

The Everett Herald reports,

A resolution could help reduce trade tensions and discourage retaliatory tariffs that could hurt Boeing and other industries…

The preferential rate was a factor in an ongoing dispute between the World Trade Organization, which mediates international trade disputes, and Boeing and Airbus.

The WTO has ruled that both Boeing and Airbus are the recipients of illegal subsidies from their host governments. And Boeing and Airbus have accused each other of failing to take steps to end the disputed subsidies.

By requesting that Washington legislators remove the preferential tax break, Boeing may be hoping to avoid “a ruinous trade war over jetliners,” said Kevin Michaels, managing director of AeroDynamic Advisory, a Michigan-based consulting firm.

From The Seattle Times,

“We’re working with Boeing,” said Rep. Pat Sullivan, who introduced the companion measures with Sen. Marko Liias. “This is a bill that they suggested and asked for us to drop.”

In a statement, Boeing said “we fully support and have advocated for this action.”

The ST points out some elements of the coming legislative negations.

One wrinkle is that the bills call for a process that could reinstate the tax incentives if the U.S. and EU come to an agreement that settles their trade dispute and allows some subsidies.

Gov. Jay Inslee made clear Wednesday that this possibility of restoring the tax breaks after such a trade deal is not something Boeing can take for granted.

Unions and others have sharply criticized how the aerospace tax incentives, while intended to preserve Boeing jobs in Washington, did not commit the company to any employment levels.

The terms of any restoration of the incentives will therefore be the subject of intense negotiation as these bills progress through the Legislature.

“Lawmakers and I have discussed this and we agree today’s bill is just a starting point,” Inslee said in a statement. “I will be working with the company, its machinists, engineers and others to get this done in a timely fashion.”

There’s a lot at stake.

The board of the state’s Aerospace Futures Alliance (AFA) industry trade group, which includes Boeing, voted to support elimination of the B&O rate reduction, even though many member companies take advantage of the tax break.

Lisa Brown, executive director of the state Department of Commerce, said that if the WTO were to authorize retaliatory tariffs against the U.S., “they can be administered on any product and there is a very real threat that tariffs could be imposed on agricultural products in Washington state.”

The leaders of the Association of Washington Business and the Washington Wine Institute expressed support for the legislation to avert such tariffs. Alex McGregor, president of The McGregor Company, a provider of seeds, equipment and research to agricultural growers, agreed, saying “any possibility of retaliatory tariffs would further harm an industry that’s faced significant challenges in the last several years.”

The AP and other cite this statement from Boeing.

In a statement, Boeing spokesman Bryan Watt said Wednesday that the company advocated for and supports the legislative action to “resolve the sole finding against the United States in the long-running trade disputes between Europe and the United States over government support for the production of large commercial airplanes.“

“This legislation demonstrates the commitment of Washington – and of the United States – to fair and rules-based trade, and to compliance with the WTO’s rulings,” he said.

An issue to watch in the closing weeks of the legislative session.