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Washington state acts to drop Boeing tax break to head off EU tariffs

By Eric M. Johnson
2020 Democratic U.S. presidential candidate and Washington Governor Jay Inslee speaks during the Presidential Gun Sense Forum in Des Moines

By Eric M. Johnson

SEATTLE (Reuters) - Washington state lawmakers moved on Wednesday to remove a key tax break for Boeing Co <BA.> and other aerospace firms in a bid to head off possible European tariffs on U.S. goods and ease a transatlantic trade dispute over aircraft subsidies.

The United States last week toughened its own tariffs on aircraft built by Boeing's arch-rival, Europe's Airbus <AIR.PA>, after winning approval last year from the World Trade Organization to penalize European goods over Airbus subsidies.

The European Union is widely expected to win approval to impose similar tariffs on U.S. goods when a parallel case over U.S. support for Boeing comes to a head during the spring.

The WTO has found that the world's two largest planemakers received billions of dollars of unfair subsidies in cases dating back to 2004. The global trade body has faulted both sides for failing to comply with its previous rulings, opening the door to a tariff war.

After years of debate, the main focus of the European case against the United States involves a system of preferential state tax rates for aerospace introduced 16 years ago and renewed in 2013 to help attract production work for Boeing's 777X.

Washington state lawmakers in Olympia said they had introduced companion bills in the Senate and House that would remove the aerospace tax break, which saved Boeing more than $200 million in 2018.

"There is broad agreement in Olympia that we need to act this session to address the WTO issue in order to avoid retaliatory tariffs that would damage not just our commercial aircraft industry, but other important Washington exports," Governor Jay Inslee said in a statement.

He said Boeing - which was widely reported to have lobbied for the tax breaks to be extended to include the new 777X program in 2013 - had now asked for them to be removed.

"Boeing has said it would like that tax incentive at least suspended, until the issue is fully settled with the European Union," Inslee said in a statement.

The 777X, the largest twin-engined jetliner, staged a maiden flight last month.

Boeing said in a statement that it fully supports legislation to reverse the tax breaks.

"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," Boeing said.

But, it said, Airbus and the European Union must "finally come into compliance by ending illegal launch aid subsidies once and for all and addressing the harm they have caused the United States aerospace industry and its workers."

The United States says the European Union has failed to address subsidies for Airbus' A380 and A350 airliners.

The European Union says it has fallen into line with the WTO's rulings and accused the Trump administration of dragging its feet on removing aid for Boeing.

Both sides have called for negotiations while accusing the other of failing to cooperate. Meanwhile, makers of products ranging from luxury goods to whisky have raised concerns over the impact of a tit-for-tat tariff war spreading beyond the aerospace industry.

(Reporting by Eric M. Johnson in Seattle; Additional reporting by Tim Hepher; Editing by Leslie Adler)