Update, Sept. 10: When the WTO Interim Report finding Airbus violated certain rules against certain subsidies under the WTO, Boeing supporters were quick and prolific to jump on leaked reports and briefings and some called for the US Defense Department to exclude the Northrop Grumman/EADS/Airbus bid from the KC-X tanker re-compete.
Airbus supporters were strangely quiet, we thought.
Today, Sen. Richard Shelby (R-Northrop/AL) made public a letter to Ron Kirk, the US Trade Representative, on the issue. The full letter may be found here. A key excerpt:
As we discussed, many press reports are not accurately describing the complete results of the report. In fact, on every Airbus airplane there was a claim against, the loan mechanism used was ruled legal under the WTO. It is also my understanding that Reimbursable Launch Investment or “launch aid,” was determined to be an acceptable funding mechanism by the WTO. Reimbursable Launch Investment was used on the A330-200, the airframe that will be offered for the tanker contract. The A330-200 was found to have received investment aid within the permissible benchmarks under WTO guidelines – meaning that the funding received was not found to be a prohibited subsidy. Most importantly, as you stated in our meeting, Boeing was not materially injured by any action taken by Airbus.
If Shelby’s information is correct, this is highly significant. A key Boeing/USTR objective was to have the WTO find that reimbursable loans (“launch aid”) were illegal. If Shelby’s information is correct, the key objective was not achieved.
A second key objective was to block launch aid for the A350, and previous reports indicated this was not achieved, either. If this report is also correct, these are two major points on which the USTR and Boeing failed, and this would be a huge blow to the USTR and Boeing.
None of this diminishes the reported wins over A380 illegal subsidies and research and development issues, but Boeing supporters’ hyperbole over the Interim Report seem overblown and demands that Northrop be excluded from the KC-X tanker competition, based on the [apparently erroneous] understanding that launch aid for the A330 and other A-Series aircraft was found to be illegal, is off target.
For those Members of Congress who demand that the Pentagon exclude Airbus, via Northrop Grumman, from bidding on the KC-X tanker re-compete because a WTO three-judge panel issued an Interim Report finding Airbus received illegal subsidies, guess what:
Another provision in the WTO rules, dating to 1996 and to which the US is a signatory, specifically states that there cannot be “cross-retaliation” in government procurement in response to a WTO action. Further, the same provisions say that international competitors cannot be discriminated against, or excluded, in favor of domestic companies except under very narrow and specific circumstances.
We’re still putting our information together but were prompted to post this item in response to this Reuters story from Wednesday night that the Pentagon is nearing completion of its Draft RFP for the aerial tanker, for issuance this month. Reuters quotes unidentified sources as saying there will be a provision in the DRFP about the WTO finding, which is still subject to comment, a final draft, adoption and appeal–a process that could take years. Reuters’ sources don’t say what the provision will say.
We have read the relevant sections of WTO rules that make it clear cross-retaliation is expressly prohibited. The entire section on government procurement is designed to protect competition from undue pressure from domestic politicians.
We have a few more days of research, but the language is clear (even for a bunch of lawyers writing rules for an international organization).
There is also express prohibition in WTO rules against a victorious party (the US government, in this case) from jumping the gun on self-help. Engaging in self-help opens the imposing government to sanctions.
Since the politicians are relying on the WTO Interim Report to exclude Airbus (Northrop) from the KC-X competition, they might take note of the WTO prohibitions on cross-retaliation and requirements for fair competition for international suppliers.