Boeing Bails on Millions in Tax Breaks to Avoid Tariffs

Feb. 20, 2020, 2:38 AM

The Boeing Co. would be stripped of a preferential Washington state tax rate potentially costing the company about $100 million a year under a bill pushed by the aircraft maker itself and introduced by lawmakers Wednesday.

The bill would allow Boeing to avoid tariffs that could be imposed by the European Union for the company receiving certain Business & Occupation tax subsidies that were ruled illegal by the World Trade Organization, the measure’s prime sponsor, House Majority Leader Pat Sullivan (D), said in a telephone interview.

The WTO also has determined that government subsidies received by European competitor Airbus are illegal. The U.S. has already imposed a 10% tariff on Airbus jets that is slated to increase to 15% next month.

The bill likely would give Boeing considerable leverage in negotiations between the United States and the European Union to resolve the trade dispute because the Airbus subsidies ruled illegal far exceed Boeing’s subsidies that were deemed illegal.

Unintended Consequences

“We fully support and have advocated for this action,” Boeing said in a prepared statement. “When enacted, this legislation will 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. By contrast, the billions of dollars of illegal ‘launch aid’ subsidies that have been provided to Airbus, which the WTO has repeatedly found to violate global trade rules, stand unresolved.”

Boeing called for Airbus and the European Union “to 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.”

But the bill may have unintended and expensive consequences for Boeing, whose largest manufacturing operation is located in Washington. “Clawback " bills seeking to link Boeing’s tax preferences to the size of its workforce have been introduced for years but have failed to gain traction. Even if Boeing were to lose the tax break at hand, it would still receive hundreds of million of dollars in other state tax breaks.

Ray Goforth, executive director of the union representing Boeing engineers, said Wednesday it’s time to consider them again. He’s been in talks for a week about holding Boeing’s feet to the fire by amending the bill to include some kind of performance metric on the size of Boeing’s workforce. The Society for Professional Engineering Employees in Aerospace chief said there are about 5,000 fewer employed union members in Washington state than before the most recent extension of the tax subsidies.

Performance Metrics

“The Washington state Legislature, when they passed these latest tax cuts for Boeing, unintentionally created a structural incentive for Boeing to move jobs out of Washington state because the tax subsidy was not attached to any type of performance metrics,” Goforth said. “Boeing was presented with this very logical choice: take the Washington state tax subsidies, move those jobs to another state like South Carolina, and then take their subsidies.”

“The Legislature and the state as a whole took Boeing at its word,” Goforth said. “That they would take these subsidies and use them to grow and create more work in Washington state. Instead, as soon as the legislation was signed by the governor, Boeing immediately started shipping thousands of jobs to other states.”

Sullivan said the issue is important to members of his caucus and will be discussed as the bill moves forward.

A state international trade group on Wednesday praised Boeing for the move, which it said could help resolve a trade dispute with the potential to create significant collateral damage in Washington’s export economy.

Avoiding EU Tariffs

If the bill doesn’t pass, the European Union would be authorized by the WTO to impose tariffs on U.S. imports into the EU, Washington Council on International Trade President Lori Otto Punke said in a prepared statement.

Punke noted that the European Union’s preliminary tariff list goes far beyond the aerospace industry, includingother products and industries essential to the trade-related Washington state economy, such as wine, coffee, apples, cherries, fish, and shellfish. Even video games made the list.

“These tariffs would be a significant hit locally,” Punke said in the statement. “In 2018 alone, Washington state exported $12.2 billion worth of products and services to the EU, the second-highest only to China.”

The EU is the largest importer of Washington state services, totaling $8.1 billion in 2017, including $1.8 billion in services to the United Kingdom, according to the E.U. Washington Council.

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bloomberglaw.com

To contact the editor responsible for this story: Jeff Harrington at jharrington@bloombergtax.com

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