The World Trade Organization on Monday struck a blow against Boeing Co., determining a key tax benefit granted for production of its newest long-haul jetliner contravenes international trade rules.

The tax was a central part of a case the European Union in December 2014 filed with the WTO against the U.S. as part of a wider protracted dispute over subsidies to aircraft makers.

The WTO said the U.S. should withdraw the subsidy within 90 days, though the U.S. can appeal the ruling.

"We expect the U.S. to respect the rules, uphold fair competition, and withdraw these subsidies without any delay," said EU Trade Commissioner Cecilia Malmströ m.

A Boeing official said the company expects an appeal will lead to the WTO's judgment being overturned.

The wider dispute dates back more than a decade over government handouts provided to Boeing and its European rival Airbus Group SE. The two sides settled a previous disagreement in 1992, but the U.S. walked away from that deal in 2004, arguing Airbus had an unfair advantage.

Since then, the U.S. and EU have successfully challenged subsidies to the other's large commercial airplane maker. The case has seen repeated appeals.

At stake are potentially billions of dollars in tariffs the U.S. and EU could impose on each other unless the WTO's subsidy concerns are addressed. Those tariffs could be placed on goods and services unrelated to aircraft or aircraft parts. The winning side isn't obliged to impose tariffs, and the penalty stage could be delayed again if the EU and U.S. make changes to the way the benefits are provided.

Each side has accused the other of providing billions of dollars in illegal government assistance, and the two have sparred repeatedly over the value of state aid. The EU said the latest prohibited subsidy that has to be withdrawn immediately amounts to $5.7 billion. The U.S. said the value is $50 million.

The tax benefit was conferred for production of the 777X widebody plane, an updated model Boeing is developing. The plane, which can seat more than 400 passengers, is due to enter service around the end of the decade.

The WTO in September determined the EU had failed to properly remove subsidies granted to Airbus in an earlier case. Next year it is expected to pass similar judgment on the U.S.

Airbus Chief Executive Officer Tom Enders renewed his call or Boeing to return to the negotiating table: "The only way out of the ridiculous series of disputes initiated by the U.S. is to agree on a set of globally applicable rulesfor the support of the civil aircraft industry, which would benefit both sides of the Atlantic."

He said the financial backing being provided to other plane makers in Canada, Russia and Asia made it critical to establish a "global framework."

Viktoria Dendrinou 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

November 28, 2016 11:25 ET (16:25 GMT)

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