The EU has failed to comply with rulings that it should cut subsidies to aircraft maker Airbus, the World Trade Organization has ruled.
Rival Boeing says it could pave the way for the US to seek up to $10bn (£8bn) in annual retaliatory tariffs.
It follows years of accusations between the two aerospace giants that each received state funding.
The WTO is yet to rule on a similar EU complaint that Boeing benefits from billions of dollars in tax breaks.
Washington responded to the ruling by calling for an immediate halt for EU subsidies to support US jobs.
Meanwhile Airbus said it would appeal the judgment and the EU said it found some of the findings “unsatisfactory”.
Analysis: Andrew Walker, BBC economics correspondent
There are two suppliers of large civil aircraft: Boeing in the US and Airbus in Europe.
The EU and the US have both taken complaints to the WTO about subsidies supplied by the other.
At the smaller end of the market segment there are other suppliers, and certainly the potential for more from China and Russia, for example, in the future – which could well involve state subsidies that eventually end up in front of a WTO dispute settlement panel.
For now, though the big stuff is a duopoly. There are two players with state backing, according to WTO judgements. For the rest of the world that is pretty good news.
It ensures there is at least some competition. And without the subsidies, a large plane could well be even more expensive.
It is the latest of a series of tit-for-tat transatlantic complaints about aircraft subsidies that make up the world’s largest and longest-running trade dispute, which has so far been bitterly battled out over 12 years.
In June 2011, the WTO found that the EU and four of its member countries provided billions of dollars in subsidised financing to Airbus.
The compliance panel has now ruled that the EU failed to comply with all but two of 36 earlier rulings to cut back subsidies European governments provided to Airbus.
The loans were a “genuine and substantial” cause of significant lost sales for Boeing, the WTO said.
The EU had argued that the most recent Airbus jet, the A350, fell outside the case, but that was rejected by the WTO which said funding for the jet had been subsidised.
However it rejected US claims that it fell into the most serious category of “prohibited” aid.
The WTO has also issued rulings over the years saying that Boeing was the recipient of banned federal and state support.
Dennis Muilenburg, Boeing chairman, said: “Today’s ruling finally holds the EU and Airbus to account for their flouting of global trade rules.”
“This long-awaited decision is a victory for fair trade worldwide and for US aerospace workers, in particular.”
US Trade Representative Michael Froman said the panel’s finding was “a sweeping victory for the United States and its aerospace workers”.
He called on the EU, Germany, France, the United Kingdom and Spain “to respect WTO rules”.
“We call on them to end subsidised financing of Airbus immediately,” he said.
In response, the EU said: “There are certain findings of the panel that we consider to be unsatisfactory. We are closely analysing the report.”
It said the findings should be read in the context of two other reports expected to address US subsidies in coming months.
Airbus said it mostly conformed with its global trade commitments and would appeal.
“We only needed to make limited changes in European policies and practices to comply,” it said in a statement.
“We will address the few still remaining points indicated by the report in our appeal,” Airbus said.
Both the EU and the United States have the right to appeal against the ruling.
EU Failed to Cut Off Illegal Subsidies to Airbus, WTO Rules
By ROBERT WALL and DOUG CAMERON (Wall Street Journal)
Sept. 22, 2016
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 mis-characterizing 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 signalled 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 email@example.com and Doug Cameron at firstname.lastname@example.org