By Robert Wall and Doug Cameron 

The long-running battle over billions of dollars in state subsidies to Airbus Group SE and Boeing Co. intensified on Thursday when the World Trade Organization ruled that European governments had failed to end unfair funding to the European plane maker.

The ruling moves the U.S. one step closer to being able impose more than $5 billion in annual tariffs against goods and services from the European Union as soon as next year.

The WTO said in a 574-page report that the EU and some of its member states "failed to comply" with an earlier ruling to remove the subsidies or void their effect to Airbus. EU compliance efforts fell short, the WTO ruled.

The trade body in a future ruling is expected to find the U.S. similarly didn't sufficiently address concerns about subsidies benefiting Boeing. It could lead to the EU being allowed to impose similar sanctions on U.S. exporters.

Airbus, the world's No. 2 plane maker, and its larger rival Boeing are locked in a fierce battle for market share. After airlines went on a multiyear plane buying binge, the value of their combined backlogs of commercial airplanes has risen to almost $1.4 trillion. Still, both argue they have lost deals to the other.

The Geneva-based trade adjudicator said that Airbus received subsidies for its new A350 XWB 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 A350 XWB 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 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 they will aim to sell them with large government backing.

Boeing Chief Executive 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."

The commission signaled it might 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 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.

A U.S. trade official Thursday said talks with the EU could resume, but only after government loans to Airbus were reprised to commercial rates.

The lack of progress in settling the subsidy spat is seen as another reflection of poor trans-Atlantic trade relations at a time negotiations on a far more sweeping trade deal appear stalled.

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 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.

--William Mauldin contributed to this article.

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

 

(END) Dow Jones Newswires

September 22, 2016 13:55 ET (17:55 GMT)

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