Boeing Co. received an illegal tax break from Washington state as part of $8.7 billion in aid to assemble the 777X and manufacture the jetliner’s carbon-fiber wing there, the World Trade Organization said.

An incentive cutting a state levy on gross receipts by 40 percent is a prohibited subsidy that must be removed, a three-judge panel found Monday. The tax break gave an unfair advantage to the U.S. planemaker to the detriment of overseas manufacturers, the WTO found. 

The European Commission said Boeing received an illegal tax break of $5.7 billion, while the U.S. company put the value at $1 billion over 20 years. The decision marks the latest twist in a longstanding clash between the U.S. and European Union over government incentives to ease the heavy costs of developing new jetliners for Chicago-based Boeing and Europe’s Airbus Group SE.

The ruling is “an important victory for the EU and its aircraft industry,” EU Trade Commissioner Cecilia Malmstrom said in a statement. “We expect the U.S. to respect the rules, uphold fair competition, and withdraw these subsidies without any delay.”

Boeing said the WTO rejected six of the seven incentives challenged by the European Union and said only that a tax break on future 777X revenue would violate global trade agreements.

“In rejecting virtually every claim made by the EU in this case, the WTO found today that Boeing has not received a penny of impermissible subsidies,” J. Michael Luttig, the planemaker’s general counsel, said in a statement. The company expects the 777X tax break to be upheld if appealed, he said.

Long Process

If the U.S. appeals the decision, as expected, the case would follow the same circuitous legal process as 2011 WTO rulings that barred European aid for the Airbus A380 superjumbo and U.S. perks for Boeing’s 787 Dreamliner.

The Geneva-based trade body found in September that the European Union failed to adequately remedy incentives including launch aid for Airbus’s A380, deemed illegal in 2011, and compounded the issue with below-market loans for the planemaker’s A350. The U.S. would be allowed to pursue retaliatory sanctions if the finding stands. The European Union is appealing the ruling and disputing U.S. claims of $22 billion in damages.

The WTO also is expected to determine next year whether the U.S. and Boeing have adequately addressed $5.3 billion in illegal benefits that flowed to the planemaker from NASA and state aid.

Lawmakers in Washington, Boeing’s traditional manufacturing hub, approved the sweeping $8.7 billion in state aid in 2013 as the planemaker threatened to manufacture the redesigned 777 elsewhere. Washington landed the 777X work, as well as a composite wing factory, after pledging to extend through 2040 tax incentives for aerospace-related companies that were due to expire after 2024.

The measure has drawn fire locally because it didn’t require Boeing to maintain employment at a set level in order to maintain the benefits.