Update on Boeing Subsidies

Whaddaya know? Just four days after I mentioned that Boeing did not repay the billions it had already received from the 2003 Washington subsidy package (h/t Greg LeRoy), the World Trade Organization approved EU retaliation for these subsidies in the form of $4 billion per year of tariffs on U.S. goods.

 Predictably, Boeing and the U.S. government are crying foul, saying it wasn’t fair to allow tariffs on a subsidy that had already been terminated, but not acknowledging that the company had already received about ¾ of the tax breaks the state provided for in 2003, or approximately $2.4 billion in nominal terms at the originally reported figure of $160 million per year. Note that the Times continues to report this figure as $100 million per year, while CNBC reported that the company saved $200 million in 2018 due to the tax breaks, so YMMV. In any event, it’s still a lot of money.

 Moreover, when Boeing announced the end of 787 production in Washington, Governor Jay Inslee said that the company’s “favorable tax treatment” in the state needed to be reconsidered. According to the Seattle Times, the main tax breaks saved the company $1.4 billion in 2014-2019. You can see why the European Union and Airbus complain that Boeing is still being subsidized.

 Don’t forget that Airbus is also subsidized. The WTO authorized the United States to impose $7.5 billion in tariffs annually on EU products over “launch aid” given to Airbus in the form of low-interest loans and about $4 billion in grants. As several of the New York Times interviewees noted, the dueling, WTO-approved tariffs may finally create the impetus to negotiate an end to the Boeing-Airbus subsidy war. Time will tell.

Wow! Boeing asks for end of Washington State subsidies UPDATED X 2

The New York Times is reporting that Boeing Corporation has requested that the state of Washington stop providing it with tax breaks that the World Trade Organization (WTO) has on multiple occasions ruled to be an illegal subsidy under the Agreement on Subsidies and Countervailing Measures. On February 19, State Senator Marko Liias and co-sponsors introduced a bill at the company's request to end these subsidies.

Of course, Boeing's move did not come from the goodness of the company's heart. It represents part of its maneuvering in its WTO war with Airbus. 16 years ago, the United States challenged Airbus' EU subsidies at the WTO and the European Union fired right back with a complaint against Boeing's subsidies from the state and federal government. Both won as plaintiffs and lost as defendants. (The same was true for Canada and Brazil, which alleged illegal export subsidies to Embraer and Bombardier regional jets.) As I noted over six years ago, while the federal government had eliminated its subsidies to Boeing through NASA and the Department of Defense, the state and local subsidies were continuing merrily along. Indeed, the WTO Appellate Body affirmed this again last year (h/t NYT), with the state subsidies valued at $100 million per year.

As a result, the company wants to clean its slate in order to help the United States press its case against Airbus and the unresolved issues there with EU subsidies. (Note that in the WTO, only countries have standing to file complaints; companies cannot do so.) Airbus received billions of dollars worth of subsidized loans in so-called "launch aid." This is quite an amazing dispute: Not only has it lasted ever since the World Trade Organization came into being in 1995, but a settlement to the dispute was supposed to be part of the agreements creating the WTO.

The bill is expected to pass in the current legislative session, which ends March 12. Thus, thanks to the European Union and the World Trade Organization, Washington taxpayers will save $100 million a year going forward.

Update: CNBC reports that the tax break saved Boeing $200 million in 2018, double the amount mentioned above.

Update 2: My colleague Kasia Tarczynska at Good Jobs First reminds me that Boeing also receives subsidies in Missouri and South Carolina. This led me back to the WTO's report on U.S. compliance as modified by the Appellate Body. While the dispute, for whatever reason, did not include Missouri subsidies, it also covered a variety of subsidies beyond Washington state, including Industrial Revenue Bonds (IRBs) from Wichita, Kansas, and 11 subsides that comprised the South Carolina package. If I have this correct, the Dispute Panel found that the United States had not removed the state and local subsidies in Washington, while the Appellate Body added that only some of the subsidies in South Carolina were in violation of the rules, and it was unclear if Wichita's IRBs constituted a "specific subsidy" that could be sanctioned. It is possible, therefore, that Boeing may have some more cleaning up to do to get to the blank slate it wants to have when it presses against Airbus subsidies.

Alabama's Airbus Subsidy Eerily Reminiscent of Auto "Transplants"

The July 2 announcement that Airbus would begin assembly of its A-320 airliner in Mobile, Alabama, may be good for Alabama, but whether it's good for the country as a whole is dubious. Indeed, it most reminds me of the subsidized arrival of foreign auto "transplants" that helped undermine Detroit's Big 3 as well as the unionization of the auto industry.


The new $600 million facility is projected to create 1000 jobs. Initial reports put subsidies to the company as $158.5 million from the state and various local governments (thanks to @varnergreg for pointing out this article). Remember, though, that initial reports are more likely to underestimate subsidies than overestimate them, as in the case of Electrolux in Memphis. However, if this is remotely near accurate, Alabama got a much better deal for Airbus than did Washington state for the Boeing 787 Dreamliner, which was 220% of the investment and $1.65 million per job (according to my calculations for Investment Incentives and the Global Competition for Capital), more than 10 times the per job cost in Alabama.

Unfortunately, this development could repeat the example of the subsidization of foreign automakers that hastened the decline of Detroit's Big Three. According to economic geographer James Rubenstein (1992, Table 1.1), from 1979 to 1991 there was a 1 to 1 correspondence in the opening and closing of new automobile and truck assembly plants in the U.S. and Canada: 20 new ones were built, 20 old ones were closed. Every one of the new facilities received subsidies from state and local (or federal and provincial, in Canada) governments. Given that the automobile industry was in a position of overcapacity for much of that period, it is no surprise that new production simply displaced older production.

Will the same thing now happen in the aircraft industry? Globally, Airbus has been putting market share above profits since the early 2000s. With its current move to Alabama, CEO Fabrice Brégier said the company hoped to grow its U.S. market share for single-aisle planes (the A-320 competes mainly with the Boeing 737) from 17% to 50% over the next 20 years. If Airbus is successful, it would be bad for the 80,000+ employees in Boeing's Commercial Airplanes group.

Of course, there is growing global demand for airliners, especially in Asia. But China has already developed its own competitor in the single-aisle market and Airbus is building A-320s in Tianjin, China, making it unclear how much of the global growth can translate into increased U.S. employment.

As was the case with foreign automakers, this is a case where a market-seeking investment was clearly coming to the United States, but the competition for the facility allowed Airbus to extract rents through the site selection process. By repeating this process for projects large and small, state and local governments deprive themselves of as much as $70 billion per year in revenue, enough to hire all state and local employees laid off since the recession began in December 2007. At the same time, over the long haul, the process in the auto industry replaced well-paid unionized workers with less well-paid, non-union workers.  The prospect that this evolution could be repeated in the aircraft industry is a pretty depressing one, when all is said and done.

Cross-posted at Angry Bear.