Trade-Off

In a move that could have implications for the Air Force's KC-X tanker replacement program, a World Trade Organization panel today issued a final ruling stating that some repayable launch aid given by European Union member states to Airbus violated the WTO Agreement on Subsidies and Countervailing Measures (ASCM), according to World Trade Online.

As Inside the Air Force has reported, the service late last month released its much-anticipated KC-X request for proposals:

The RFP does not take into account an interim World Trade Organization ruling against Airbus for receiving government subsidies. Boeing backers wanted the ruling addressed in the final RFP.

“While we appreciated the open dialogue with the Air Force throughout this process, we are disappointed that the RFP does not address some of our key concerns, including ((EADS)) Airbus’ unfair competitive advantage derived from subsidies from its sponsor European governments -- subsidies that the World Trade Organization has found to be illegal and harmful to U.S. workers and industry -- and how fuel and military-construction costs over the life of the tankers will be factored into consideration of the competing bids,” Jean Chamberlin, vice president and general manager of Boeing’s tanker program, said in a statement. “We will review the RFP in its entirety and in detail before offering further assessment.”

Speaking to reporters following a Feb. 24 House Appropriations defense subcommittee hearing, Boeing supporter Rep. Norm Dicks (D-WA) said he was “unhappy” the finalized RFP did not include language reflecting the WTO ruling. But “besides that they’re trying their best, and we’re trying to give them the benefit of the doubt, we have to get this done, this is a national priority to get these tankers,” he said.

Inside U.S. Trade reports today that according to sources on both sides of the dispute:

They said the final decision, delivered to the parties as a confidential document, differs little from a September confidential interim decision.

The final ruling says that some repayable launch aid to Airbus are actionable subsidies that caused serious prejudice to the sales or exports of U.S.-based Boeing. If the panel ruling were upheld on an expected appeal, the EU would have to remove their effects or remove the subsidy, sources familiar with the case said.

The final panel also found that some launch aid for the Airbus A380 were export-contingent prohibited subsidies that must be withdrawn immediately.

Airbus, however, sees a silver lining in the fact that once again the panel has failed to find that launch aid as a program on its face violates the ASCM. This means that each instance of launch aid given by EU member states for the development of a specific Airbus large civil aircraft has to be challenged individually as a subsidy.

The ruling therefore does not cover any launch aid that the United Kingdom, Germany, France and Spain may provide for the latest Airbus plane, the A350, in the near future, Airbus argues.

The Airbus statement highlighted that fact by saying that “US attempts to include the A350 were specifically rejected.” Therefore, Airbus said, possible future funding for that plane “is not affected in any way” by today's ruling.

A source close to the U.S. case called the Airbus argument absurd. The source said that while launch aid “in theory” could comply with the ASCM, the point of the finding is that when the loans were not on commercial terms, they violated the WTO rules.

The WTO's decision was met with applause by members of both parties in Congress.

Sen. Patty Murray (D-WA) said in a statement that "today's final ruling puts any doubts to rest -- launch aid is an illegal subsidy that has cost American jobs, hurt our ability to compete, and damaged our overall economy."

Rep. Todd Tiahrt (R-KS) said: "We finally have a concrete ruling to justify what we have been saying for years. The illegal subsidies given by European governments have caused great damage to the U.S. aviation industry and cannot continue. If Airbus decides to bid for the KC-X tanker contract, this gives the Obama administration the opportunity to show its commitment to American workers by accounting for the illegal dealings of European governments."