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Friday, September 16, 2011

Boeing in South Carolina: Huge Subsidies, and a Labor Dispute

Boeing's decision to add an assembly line for its new Dreamliner aircraft in South Carolina has touched off a firestorm of controversy. The first facility, on Boeing's home of Washington state, received the country's largest-ever package of state and local incentives, totaling $160 million a year for 20 years, a nominal value of $3.2 billion that I calculated to have a present value of just shy of $2 billion. The World Trade Organization (WTO) ruled in January that this subsidy violated the terms of the 1994 Agreement on Subsidies and Countervailing Measures, but that decision is now under appeal.

Meanwhile, South Carolina has given Boeing a package thought to be worth over $900 million  to open a new assembly line for the Dreamliner. The European Union will no doubt bring a complaint against this subsidy at the WTO and, in all likelihood, again will win.

The biggest battle over the South Carolina assembly line erupted when Boeing CEO Jim Albaugh said that the decision had been motivated by strikes at its facilities in Washington (, h/t Matt Yglesias). This was a no-no: the National Labor Relations Act protects workers who exercise their rights to form a union or to strike from retaliation by the company. One obvious reading of Albaugh's statement is that he was admitting that the company broke the law. Therefore, it is not surprising that the National Labor Relations Board (NLRB) filed a complaint against Boeing.

Whether the NLRB will win its case is less certain. How is it “retaliation” if no workers in Washington lose their job and 5,000 more union workers there get jobs? As labor law professor Jeffrey Hirsch explains, it comes down to intent: the NLRB will use the statements of Albaugh and other Boeing officials against them, while Boeing will argue that the decision was not motivated by retaliation, but was purely an economic decision. The first hearing in the case is scheduled for later this month, and then we will see what an administrative law judge rules.

In the meantime, though, Congressional Republicans have been in an uproar, with the House passing a bill yesterday that would prohibit the NLRB from ordering the relocation of workers. While this bill is unlikely to go anywhere in the Senate, it is interesting that Boeing itself has “remained on the sidelines,” as The Hill  put it yesterday.

Whatever the outcome of the labor dispute, it's clear that we have yet another example of a gigantic subsidy for a mobile company that can well afford to make the investment on its own. Regardless of whether the subsidies violate WTO rules (and I think they do), they take money from average taxpayers to give Boeing at a time when many states, including South Carolina, face severe deficits.

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