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EU widens trade row with new Boeing subsidy claim

The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young

By Tom Miles

GENEVA (Reuters) - The European Union opened a new front in a decade-old dispute over aircraft subsidies on Friday, launching a complaint at the World Trade Organization alleging illegal tax breaks in Boeing's (BA.N) home state of Washington.

The EU said the Pacific coast state, historically the base for nearly all Boeing's plane manufacturing, broke global trade rules by offering tax incentives to persuade the company to manufacture its latest model, the 777X, there.

The EU and United States have yet to resolve two parallel clashes involving mutual accusations of illegal subsidies for Boeing and its European rival Airbus (AIR.PA), collectively the biggest and longest-running dispute in the WTO's history.

The U.S. Trade Representative's office (USTR) said the claims "lack any foundation" and showed the EU did not really want a constructive solution, while a Boeing spokesman said they were a diversion from "massive amounts of illegal launch aid" paid to Airbus.

Earlier this year, Reuters exclusively reported that the EU was considering challenging the tax breaks.

The latest manoeuvres could deepen the bitter industrial contest as the 406-seat Boeing 777X, an expanded version of its profitable 777, competes with Europe's upcoming A350-1000.

In its new complaint, the EU said the WTO had ruled in 2012 that Washington state's support for Boeing and other aerospace firms until 2024 was illegal, and it was now challenging the extension of these alleged subsidies until 2040.

"The subsidies scheme extension is estimated to be worth $8.7 billion and will be the largest subsidy for the civil aerospace industry in U.S. history," the EU said in a statement.

Washington state lawmakers extended the tax breaks during a brief special session in November 2013 after Boeing said the credits were necessary for the company to produce the 777X in the state.

State officials say the credits are available to all commercial aerospace producers and that in 2013, 460 firms claimed incentives including "more than 20 European-owned aerospace suppliers".

Under WTO rules, the United States has 60 days to try to deal with the EU’s concerns in bilateral talks. After that, the EU could ask the WTO to set up an adjudication panel.

That could take until 2016, although the WTO’s dispute system is already congested. Any judgment could be appealed.

A spokesman for Washington state Governor Jay Inslee said he was aware of the request and would continue to work with USTR.

(Additional reporting by Tim Hepher in Paris, Alwyn Scott in Seattle and Krista Hughes in Washington; Editing by Andrew Roche and Christian Plumb)