WTO reverses ruling against Boeing 777X tax credits

GENEVA/PARIS (Reuters) - The World Trade Organization delivered a setback to the European Union in a long-running trade row with the United States over aircraft subsidies on Monday, reversing a ruling that Boeing had received prohibited support for its newest jet.

The decision by WTO appeal judges overturns a decision to ban some Washington state support for facilities including a $1 billion plant designed to build the world's largest carbon-composite wings for Boeing's 777X jet.

A WTO panel ruled last year that a reduction in the state's business and occupation tax in return for a decision to place 777X production in the state had deliberately shut out imports.

But its appeals body found the tax breaks had not explicitly targeted trade flows, removing them from the WTO's most severe category of banned aid known as "prohibited" subsidies.

The decision neutralises a potential trump card, which the EU played in 2014 to shake up the world's biggest trade dispute -- a decade into the war of rival claims between Washington and Brussels over support for their dominant planemakers.

Prohibited subsidies are a form of aid that the WTO's 164 members consider exceptionally market-distorting and are automatically banned wherever they are proved to exist.

For this to happen, countries bringing a complaint must prove there is a binding requirement to boost exports or reduce imports in return for aid to a company or industry.

The WTO appeals body did not consider whether the 777X tax credits fell under the more common banner of "actionable" subsidies, since the EU had refrained from making time-consuming fallback arguments to try to secure a game-changing victory.

But the EU may use evidence from the case to try to widen a previous successful claim against earlier versions of the same tax credits, meaning that although the EU's latest gambit failed, the 13-year-old WTO legal treadmill continues.

Boeing accused Airbus of targeting the 777X to obscure its failure to rectify disputed European government loans.

Airbus said it had lost $100 billion in plane sales due to tax credits and renewed a call for talks to end the dispute.

(Reporting by Tim Hepher, editing by Tom Miles)