Conditional Tax Incentives for Large Civil Aircraft
Total Page:16
File Type:pdf, Size:1020Kb
U.S. Business Confidential Information (BCI) Redacted United States – Conditional Tax Incentives for Large Civil Aircraft (DS487) FIRST WRITTEN SUBMISSION OF THE UNITED STATES January 19, 2016 (Revised bracketing January 20, 2016) U.S. Business Confidential Information (BCI) Redacted TABLE OF CONTENTS Table of Reports ............................................................................................................................. iii Table of Abbreviations and Acronyms ........................................................................................... v Introduction ..................................................................................................................................... 1 I. Background: Washington’s Aerospace Industry and Boeing’s Production of Commercial Airplanes ............................................................................................................................. 4 A. The Washington Aerospace Industry ...................................................................... 4 B. Boeing’s Development of LCA .............................................................................. 6 1. 777: Origins of the 777X ............................................................................ 7 2. Development and launch of the 777X ........................................................ 8 a. Initial Planning ................................................................................ 8 b. Boeing’s Multi-State Site Search .................................................... 9 c. Boeing’s Final Decision to Site the 777X Program in Everett, Washington ...................................................................... 10 3. Boeing’s Planned 777X Manufacturing Operations in Everett ................ 10 II. Washington’s Tax System and the Challenged Measures ................................................ 13 A. B&O Tax ............................................................................................................... 13 B. Retail Sales Tax .................................................................................................... 14 C. Use Tax ................................................................................................................. 15 D. Property Tax.......................................................................................................... 15 E. Leasehold Excise Tax ........................................................................................... 16 III. The Challenged Measures and Conditions in ESSB 5952 ................................................ 16 A. Challenged Tax Incentives .................................................................................... 17 1. B&O Tax Rate of 0.2904 Percent ............................................................. 17 2. B&O Credit for Aerospace Product Development ................................... 19 3. B&O Credits for Property and Leasehold Excise Taxes .......................... 21 4. Computer Sales & Use Exemptions .......................................................... 22 5. Construction Sales & Use Exemptions ..................................................... 22 6. Leasehold Excise Exemption .................................................................... 23 7. Property Tax Exemption ........................................................................... 24 B. ESSB 5952 ............................................................................................................ 24 1. Initial Siting Provision .............................................................................. 24 2. Future Siting Provision ............................................................................. 26 IV. The EU Ignores Its Burden of Proof as the Complainant in a New Dispute. ................... 26 V. The EU Fails to Demonstrate that Any of the Challenged Measures Is a Subsidy under Article 1.1 of the SCM Agreement. .................................................................................. 30 A. Financial Contribution .......................................................................................... 30 1. Legal framework ....................................................................................... 30 2. The EU fails to demonstrate that any of the challenged measures involves a financial contribution. .............................................................. 31 B. Benefit ................................................................................................................... 32 VI. The EU Fails to Establish that Any of the Challenged Measures is Contingent Upon the Use of Domestic over Imported Goods as Prohibited by Article 3.1(b) of the SCM Agreement. ........................................................................................................................ 33 A. The Tax Treatment in the Challenged Measures Is Not “Expressly Conditioned” on the Use of Domestic over Imported Goods. .............................. 35 B. Fuselages and Wings Are Not Inputs That Are “Used” as Goods in the 777X Production Process. ..................................................................................... 36 C. Article 3.1(b) Does Not Discipline Production Subsidies. .................................. 39 D. 777X Fuselages and Wings are Not Saleable or Traded “Goods” Capable of Importation. ...................................................................................................... 41 E. The Challenged Measures Are Not “Geared to Induce” the Use of Domestic Over Imported Goods. .......................................................................... 43 VII. Conclusion ........................................................................................................................ 45 TABLE OF REPORTS Short Title Full Case Title and Citation Canada – Aircraft (AB) Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377 Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export (21.5) (AB) of Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW, adopted 4 August 2000, DSR 2000:IX, 4299 Canada – Renewable Appellate Body Report, Canada – Certain Measures Affecting Energy (AB) the Renewable Energy Generation Sector, WT/DS426/AB/R. Chile – Price Band Appellate Body Report, Chile – Price Band System and System (21.5) (AB) Safeguard Measures Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU by Argentina, WT/DS207/AB/RW, adopted 22 May 2007, DSR 2007:II, 513 China – Auto (AB) Appellate Body Report, China – Measures Affecting Imports of Automobile Parts, WT/DS340/AB/R. China – Raw Materials Appellate Body Report, China – Measures Related to the (AB) Exportation of Various Raw Materials, WT/DS394/AB/R, WT/DS395/AB/R, WTDS398/AB/R, adopted 22 February 2012 EC – Bed Linen Appellate Body Report, European Communities – Anti-Dumping (21.5) (AB) Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU by India, WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, 965 EC –Hormones (AB) Appellate Body Report, European Communities – Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998 EC – Large Civil Aircraft Appellate Body Report, European Communities and Certain (AB) Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1 June 2011 EC – Large Civil Aircraft Panel Report, European Communities and Certain Member (Panel) States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as modified by Appellate Body Report, WT/DS316/AB/R Japan – Apples (AB) Appellate Body Report, Japan – Measures Affecting Agricultural Products, WT/DS76/AB/R, adopted 19 March 1999 Short Title Full Case Title and Citation Brazil – Desiccated Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut (AB) Coconut, WT/DS22/AB/R, adopted 20 March 1997 Canada – Aircraft (AB) Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377 Canada – Autos (AB) Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000 Chile – Price Band Appellate Body Report, Chile – Price Band System and System (AB) Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/AB/R, adopted 23 October 2002 EC – Commercial Panel Report, European Communities – Measures Affecting Vessels Trade in Commercial Vessels, WT/DS301/R, adopted 20 June 2005 EC –Hormones (AB) Appellate Body Report, European Communities – Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998 EC – Large Civil Aircraft Appellate Body Report, European Communities and Certain (AB) Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1 June 2011 Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 and Corr.2, adopted 23 July 1998, and Corr.3 and 4 Japan – Alcoholic Appellate Body Report, Japan – Taxes on Alcoholic Beverages, Beverages II (AB) WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996 US – FSC (AB) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations",