BA Boeing Co

By Robert Wall and Doug Cameron 

The World Trade Organization on Thursday said the European Union had failed to eliminate illegal subsidies to Airbus Group SE in a multibillion-dollar trade dispute with the U.S.

The 574-page verdict is the latest in the long-running trans-Atlantic battle over state aid that governments have granted to Airbus, the world's No. 2 plane maker, and its larger rival, Boeing Co.

The WTO said the EU and some of its member states "failed to comply" with an earlier ruling to remove the subsidies or void their effect. Measures the EU took to comply with an earlier finding were deemed insufficient.

The WTO in a future ruling is expected to find the U.S. similarly didn't sufficiently address concerns about subsidies benefiting Boeing Co., people familiar with the process said.

The Geneva-based trade adjudicator also said that Airbus received subsidies for its new A350XWB long-range plane, though it rejected the U.S. claim these were "prohibited subsidies" that have to be remedied expeditiously.

The WTO hadn't previously passed judgment on A350 support because the program in its current form was launched only after the U.S. initially raised its subsidy concerns with the trade body in 2004. Airbus only formally began the A350XWB program in 2006 to challenge rival Boeing's 787 Dreamliner.

U.S. Trade Representative Michael Froman called the ruling "a sweeping victory" and urged the EU to halt subsidies to Airbus "immediately."

An Airbus spokesman said the U.S. was mischaracterizing the WTO findings. The WTO panel "recognizes that, not only is the Airbus instrument totally legal, but terms of A350 agreements are very close to perfect with only tiny tweaks required," he said.

The U.S. has signaled it could seek to impose at least $7 billion in retaliatory tariffs.

The European Commission, the EU's executive arm, defended its actions. "An important win for the EU is that the panel rejected new U.S. claims that repayable support for the airbus models A350XWB and A380 are 'prohibited subsidies,'" the Commission said.

Plane subsidies are becoming an increasingly hot topic. Canadian plane maker Bombardier Inc. got a capital injection from the Quebec government in exchange for a stake in the CSeries single-aisle program. The move has been criticized by rival plane makers.

China and Russia also are developing new single-aisle planes, raising concern that they will aim to sell them with significant government backing.

Boeing Chief Executive Officer Dennis A. Muilenburg called the latest WTO ruling "a victory for fair trade world-wide and for U.S. aerospace workers, in particular."

The Airbus spokesman said Boeing "remains in denial that billions of grants for the 787 and 777 have been declared completely illegal by the WTO."

At stake are potentially billions of dollars in tariffs the U.S. and EU could be allowed to impose on each other unless the WTO's subsidy concerns are addressed. Those tariffs, which haven't yet been set and don't have to be imposed by the winning side, could be applied to trade involving products or services other than planes or their components.

Before fines are imposed, the EU can appeal the latest finding in a process that is likely to take at least three months.

The commission signaled it may appeal. "There are certain findings of the panel that we consider to be unsatisfactory," it said.

Trade experts believe the WTO plane subsidy dispute between the U.S. and EU could drag on for years.

Mr. Froman said the subsidies the EU, Germany, France, the U.K. and Spain had provided to Airbus "have cost American companies tens of billions of dollars in lost revenue." The U.S. said subsidized financing to Airbus amounted to almost $22 billion.

The U.S. raised its initial objection in the Airbus case in 2004, alleging that EU member states gave illegal subsidies to the Toulouse, France-based aircraft maker. The EU quickly launched a similar case against the U.S., arguing that the U.S. illegally subsidized Boeing.

The two sides settled a previous dispute over subsidies in 1992, but the U.S. walked away from that deal in 2004, arguing Airbus had an unfair advantage. Efforts to return to the negotiating table have failed.

The WTO also is expected to rule in the coming months on a further challenge the EU filed against subsidies it alleges Boeing has received for the 777X, the U.S. manufacturer's newest long-haul plane. The EU first raised the issue with the WTO in late 2014. The case is moving more quickly because its scope is narrower than that of the earlier two cases. In it, the EU is challenging tax breaks Boeing has received linked to the new long-haul plane launched in November 2013.

Write to Robert Wall at robert.wall@wsj.com and Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

September 22, 2016 12:04 ET (16:04 GMT)

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