United States – Conditional Tax Incentives for Large
Civil Aircraft
Request for the Establishment of a Panel by the
European Union
The following
communication, dated 12 February 2015, from the delegation of the European Union to the
Chairperson of the Dispute Settlement Body, is circulated pursuant to Article
6.2 of the DSU.
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My authorities have instructed me to request
the immediate establishment of a panel pursuant to Articles 4.4 and 30 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), Article XXIII:2 of the General
Agreement on Tariffs and Trade 1994 ("GATT 1994") (to the extent
incorporated by Article 30 of the SCM Agreement),
and Article 6 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes ("DSU")
(as modified by Article 4.4 of the SCM Agreement,
and in light of Article 1.2 and Appendix 2 to the DSU), with respect to
conditional tax incentives established by the State of Washington in relation
to the development, manufacture, and sale of large civil aircraft.
On
19 December 2014, the European Union requested consultations with the
Government of the United States, pursuant to Articles 4.1 and 30 of the SCM Agreement, Article XXIII:1 of the GATT 1994 (to the
extent incorporated by Article 30 of the SCM Agreement),
and Article 4 of the DSU, with respect to such conditional tax incentives. The request was circulated in document
WT/DS487/1 on 23 December 2014.
Consultations
were held on 2 February 2015, pursuant to each of the above-referenced
provisions, with a view to reaching a mutually agreed solution. Unfortunately, the consultations failed to
settle the dispute.
As a
result, the European Union hereby requests the "immediate establishment"
of a panel, as provided for in Article 4.4 of the SCM
Agreement, with the standard terms of reference set out in Article
7.1 of the DSU with respect to the measures identified in this request.
The
European Union recalls that Articles 4.6 and 4.12 of the SCM
Agreement provide for expedited time-periods applicable to disputes
such as this one, conducted under Article 4 of the SCM
Agreement. The European Union
expects that the panel will observe these expedited time-periods.
I. Background
In
November 2013, the State of Washington, as part of its efforts to induce The
Boeing Company to manufacture its new 777X model of large civil aircraft in
Washington State, vastly expanded and amended its existing aerospace tax
incentives, thereby providing billions of dollars in additional subsidies to Boeing. These expansions and amendments also made the
continuing availability of such tax incentives, in whole or in part, contingent
upon (i) siting production of the wings and final assembly for a new commercial
aircraft model or variant in Washington State, and (ii) maintaining all wing
assembly and final assembly of such commercial aircraft exclusively in
Washington State.
II. Measures at issue
The measures that are the subject of this
request are tax incentives for civil aircraft provided by the State of
Washington, as amended by Substitute Senate Bill 5952 (Chapter 2, Laws of 2013
3rd Special Session, 2014 Wash. Sess. Laws 2). Specifically, the tax
incentives are currently contained in the following sections of the Revised
Code of Washington ("RCW"): 82.04.260(11)
(preferential Business & Occupation tax rate with respect to the
manufacture or sale of commercial airplanes); 82.04.4463 (tax credits for
property taxes and leasehold excise taxes on commercial airplane manufacturing
facilities); 82.04.4461 (tax credits for aerospace product development);
82.08.975 (sales tax exemption for computer hardware, software, and
peripherals); 82.08.980 (sales tax exemption for construction services and
materials); 82.12.975 (use tax exemption for computer hardware, software, and
peripherals); 82.12.980 (use tax exemption for construction services and
materials); 82.29A.137 (leasehold excise tax
exemption); and 84.36.655 (leaseholder property tax exemption). Moreover, the availability of the tax
incentives is subject to the conditions in Sections 2, 5, and 6 of
Substitute Senate Bill 5952 (as codified at RCW 82.32.850 and
82.04.260(11)(e)(ii)), which are also covered by this request.
In
addition to the measures cited in the above paragraph, this request also covers
any amendments, supplements, extensions, replacement measures, renewal
measures, related measures, or implementing measures.
III. Legal basis for the complaint
The
measures identified in Section II constitute specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement. Specifically, these measures provide a
financial contribution in the form of "government revenue … otherwise due"
that is "foregone" within the meaning of Article 1.1(a)(1)(ii),
and "a benefit is thereby conferred" within the meaning of Article
1.1(b). For reasons explained in the
following paragraph, the subsidies are specific within the meaning of Article
2.3 of the SCM Agreement.
These
measures condition billions of dollars in subsidies upon the use of aircraft
components manufactured in Washington State.
Specifically, conditions contained in Sections 2, 5 and 6 of Substitute
Senate Bill 5952 (as codified at RCW 82.32.850 and 82.04.260(11)(e)(ii)) make
the subsidies "contingent … upon the use of domestic over imported goods",
in law or in fact, within the meaning of Article 3.1(b) of the SCM Agreement.
Accordingly, these measures are prohibited subsides that are
inconsistent with Articles 3.1(b) and 3.2 of the SCM
Agreement, and must be withdrawn without delay, pursuant to Article
4.7 of the SCM Agreement.
* * *
The European Union asks that
this request be placed on the agenda for the next meeting of the Dispute
Settlement Body, which is scheduled to take place on 23 February 2015.
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