The World Trade Organisation (WTO) said Monday that Washington State provided illegal tax breaks to US aircraft manufacturer Boeing in a trade ruling that favors European Union-based rival plane maker Airbus.
Boeing is headquartered in Renton, Washington.
The 28-member bloc said the WTO had ruled that $5.7 billion in subsidies were illegal, out of a total $8.7 billion in measures that it reviewed.
The decision was viewed as a setback for the USA plane maker as it eyes victory in a parallel case against Airbus.
The WTO said subsidies set up by the state of Washington to support the production of Boeing's 777X jet were "prohibited" as they encouraged the use of domestic materials, fueling trade distortions. Airbus was represented by the European Union in the case while the USA. federal government fought for Boeing and Washington state because companies and regional authorities do not have standing at the Geneva-based WTO.
"By contrast, in rejecting virtually every claim made by the European Union in this case, the WTO found today that Boeing has not received a penny of impermissible subsidies".
"The decision published today shows that the United States not only ignored first decisions by the WTO but even chose to prolong a condemned measure", a statement from the French Economy and Finance Ministry said in a statement. The 777X will compete with France-based Airbus' A350 aircraft.
As such, European Union Trade Commissioner Cecilia Malmström was pleased by the ruling, Monday, now calling for the removal of the prohibited tax break.
The WTO panel recommended that Washington withdraw the business and occupation tax subsidy within 90 days.
The case could have some implications for President-elect Donald Trump's ambitions to support USA business first and foremost.
Airbus had already confidently predicted victory at the WTO over the Washington state tax incentives, saying during the latest tit-for-tat showdown in September that the alleged subsidies would "almost certainly be condemned as illegal".
Though deemed to be incentives, the six other tax measures were rejected by WTO.
The WTO held only and narrowly that a reduction in Washington state's Business and Occupancy tax rate for future 777X revenues is inconsistent with the WTO agreements.