Boeing has asked for its tax breaks to be suspended amid an acrimonious and escalating trade war between the USA and the European Union, targeting its respective aircraft manufacturers, that threatens to play long-term havoc on aircraft deliveries on both continents.

Lawmakers in the northwestern US state of Washington, where Boeing has a sizable presence, say they will introduce bills to stop giving the Chicago-headquartered plane-maker preferential tax incentives, dating back to 2003, until the USA and the European Union resolve their trade disputes.

737 Max line - Boeing

Source: Boeing

Boeing 737 Max in production

Boeing says it supports these changes.

“Boeing applauds the actions today by Washington State leaders to introduce this legislation,” the company says in a statement on 19 February. “We fully support and have advocated for this action. 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. 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.”

The request is the latest move in an escalating trade dispute between US and European regulators. Last week, the Office of the US Trade Representative raised its tariffs on large European aircraft to 15%, up from the 10% levy implemented last October, in an ongoing disagreement over subsidies.

At the centre of the ruling last October were EU subsidies for Boeing’s European rival Airbus, which the arbitrator heavily criticised as being “WTO-inconsistent”, and causing adverse effects to the USA.

While the USTR was permitted to impose up to 100% tariffs on $7.5 billion of goods — including Airbus jets — the office said at the time it would initially impose 10% levies on new commercial aircraft of more than 30t, and 25% levies on other products such as Irish and Scotch whiskey, German machinery, and cheese.

Airbus said earlier this week that it “deeply regrets” the increase, and warns that, as well as escalating the dispute, it creates “more instability” for those US carriers which are “already suffering from a shortage of aircraft”.

The aerospace industry is waiting for a second case, currently before the WTO, to be resolved. It targets subsidies that Boeing received through various federal, state and local authorities, particularly in Washington and South Carolina as well as the city of Wichita, Kansas.

European trade regulators promised a counterstrike to the USTR measures against European companies once a decision is made. The European Commission already drew up a list of US export targets collectively worth about $20 billion – far greater than the $7.5 billion of countermeasures granted by the WTO to the US government, which had been pursuing remedies for $11 billion of harm caused by EU subsidies.

Airbus says it hopes the US Trade Representative will change its position once the World Trade Organization authorises these countermeasures – which are set to affect imports of the 777, 787 and 737 Max – around May-June.

Washington State Governor Jay Inslee on Wednesday urged legislators to address the trade issues, “in order to avoid retaliatory tariffs that would damage not just our commercial aircraft industry, but other important Washington exports.”

”The potential negative impact of that is highlighted by the fact that Boeing has said it would like that tax incentive at least suspended until the issue is fully settled with the European Union,” Inslee says. He calls the bills in Congress “just a starting point”.

In Wednesday’s statement, Boeing addresses “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.”

“Now is the time 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,” Boeing adds.