By Emelie Rutherford
The World Trade Organization (WTO) in a preliminarily decision found some U.S. government subsidies to Boeing [BA] were illegal, according to U.S. sources, some of whom claimed the trade violations were not as severe as European rival Airbus‘.
A WTO panel issued an interim report on the European Union (EU) complaint that some U.S. aid to Boeing violated global trade rules and distorted competition, sources said yesterday.
This interim decision regarding the EU complaint against U.S. subsidies to Boeing follows the WTO’s June final ruling that some EU subsidies to Airbus, including launch aid for developing aircraft, were illegal (Defense Daily, July 1). A final WTO report on the Boeing subsidies, which will be public and the United States could appeal, is not expected until next year. The EU, meanwhile, is appealing the WTO decision on Airbus.
The long-running trans-Atlantic trade dispute is being closely watched on Capitol Hill. European Aeronautic Defence and Space Co. (EADS), Airbus’ parent company, bid against Chicago-based Boeing for the Air Force’s aerial-refueling-tanker contract. Lawmakers from states including Washington, Missouri, and Kansas support the bid by Boeing, a major employer in their states, while politicians from Alabama back EADS, because the company could build the airplanes in their state if it wins the contract.
Nefeterius Akeli McPherson, a spokeswoman for the office of the U.S. Trade Representative Ron Kirk, declined to comment on the contents of the confidential WTO report yesterday, but confirmed her office received it. The EU complained of financial support Boeing received from the Pentagon, NASA, and Commerce Department, as well as the states of Washington, Kansas, and Illinois.
A source sympathetic to the United States and Boeing’s side in the trade battle said yesterday the WTO’s new report rejects the EU claim that through 2006 Boeing received roughly $19 billion in illegal state and federal subsidies. Of that amount, approximately $13 billion of the claims were rejected and more than $2 billion relates to an export-tax credit that the U.S. government didn’t contest because of changes in U.S. tax law that did away with the credit, according to the source, who is familiar with the contents of the confidential WTO report. Of the remaining forms of aid, which WTO found to be in violation of trade rules, “none of them are things that have the kind of impact on the market that launch aid does,” the source said.
“So what it comes down to is it looks like (the EU and Airbus) won some points, but there’s nothing there that’s market distorting in the way that launch aid is, and that was roundly condemned in the June decision” regarding Airbus, the source said.
Boeing, in a statement, said: “We look forward to learning how the WTO has ruled in today’s preliminary decision on U.S. practices, none of which have the market-distorting impact of launch aid nor even approach the sheer scale of European subsidy practices.”
Boeing backer Sen. Patty Murray (D-Wash.), a member of the Senate Appropriations Defense subcommittee (SAC-D) who was briefed on the interim report, in a statement argued the WTO decisions regarding Boeing and Airbus “are not in the same ballpark or even the same league.”
Boeing supporters Sen. Sam Brownback (R-Kan.) and Rep. Todd Tiahrt (R-Kan.) reiterated their call for the Pentagon to adjust EADS’ bid price in the tanker competition to reflect the WTO’s June finding regarding EU subsidies to Airbus.
Lawmakers backing EADS’s tanker bid, meanwhile, said the decision against Boeing reinforces their position that the two-pronged trade battle should not influence the tanker contest.
“While the confidential nature of this report will allow Boeing supporters to attempt to spin the facts in the media, it is clear that they can no longer rationally claim that this trade dispute is one sided,” SAC-D member Sen. Richard Shelby (R-Ala.) said in a statement. “However, as I have continuously said, we must not allow either report to delay the tanker replacement program or muddy the competition with politics.”
Fellow EADS backer Rep. Jo Bonner (R-Ala.), similarly argued that the preliminary WTO report “validates the Air Force decision that the WTO decisions should not be a consideration in the tanker competition.”
“It’s time for Boeing to stop making excuses and allow this procurement to more forward without further delay or interference,” Bonner said in a statement.
EADS North America spokesman Guy Hicks said in a statement the WTO’s interim report “clearly validates the Department of Defense’s position, namely that ongoing commercial trade disputes between allies are irrelevant to defense acquisitions–including the KC-X tanker competition–and should not be used to circumvent the warfighter’s right to choose the system that best meets their requirements.”
The Pentagon will announce the winner of the tanker contract “this fall,” Pentagon acquisition chief Ashton Carter told reporters yesterday.
“Anyone who tells you a specific date doesn’t know what they’re talking about,” he said.