We’ve gotten a hold of the US House amendment that was approved in the matter of the WTO subsidy issue in the KC-X competition–which Boeing and its supporters touted as a key victory to ensure the subsidies found by the WTO to be illegal and which would be considered in the evaluation if the Senate goes along–and the final version, which as adopted is meaningless pulp.
The adopted language is far different than what was initially proposed.
Here is what Boeing supporters in the House suggested: Original Amendment.
Here is what what actually adopted: Approved Amendment.
The Original Amendment was a clear violation of the WTO rules, which provide that no complaining government can impose self-help prior to completion of the entire WTO process, including the issuance of the Final Report (which has been done in the US vs Airbus case), appeals (not done) and WTO authorization for sanctions (not done).
We are told by a source familiar with the situation that the USTR counsel even told the House that the Original Amendment violated WTO rules, hence leading to a complete rewrite of the Approved Amendment.
The Approved Amendment’s language is so vague, and without legally supported definitions in procurement processes, that the Defense Department wouldn’t be able to figure out what the House bill means; “unfair competition” is undefined; and DOD almost certainly doesn’t have the expertise to figure out any “unfair” competitive cost anyway and its influence, if any, on the EADS pricing. It took the WTO years to sort this out.
(We will note once again that all the launch aid has been repaid with interest and Airbus is now paying royalties on the airplanes. How does the USAF figure this in? Over what program life time would the launch aid be amortized? The break-even point? The current outstanding orders? The forecast of orders for the next xx years? The problems with this concept are legion.)
In other words, the Approved Amendment is meaningless. No wonder it passed the House 410-8, including EADS supporters.
Action now moves over to the Senate, where Sen. Sam Brownback (R-Boeing/KS) is offering an amendment. This is virtually identical to the Original Amendment offered in the House, and would therefore also violate WTO rules. This bill is here: Brownback Bill.
“It’s not only illegal self help in violation of part 23, it’s also totally premature, as the only enforceable WTO rulings there today or will be for some time to come are against Boeing (FSC rulings),” a lawyer familiar with WTO rules tells us. “Appeals that will follow release of DS316 (the US vs Airbus case) suspend any legal effect of the judgment.”
Although the WTO’s Final Report has been issued, the public release of the document referred to in the preceding paragraph isn’t expected until the end of this month or early July.
The WTO’s Interim Report on the EU vs. Boeing is expected to be issued at the end of this month. As with the Airbus Interim Report, it will not be a public document, it’s not to be released except to the trade representatives and lawyers on both side and it will instantly become fodder for leaks on both sides.
Boeing is already downplaying the violations it expects to be found guilty of and Airbus is already spinning that Boeing will be found more guilty than it was.
As noted, action moves to the Senate, where political machinations will be in full swing. If the Brownback bill gets adopted in its present form, or in any form that is different from the House Amendment, the two versions have to be reconciled.
If an Amendment on this issue is included in the Defense Appropriations act, the Act itself must pass White House scrutiny. Issues unrelated to the tanker have been included in the House version that may prompt Defense Secretary Robert Gates to urge a presidential veto of the entire bill. (The dual source engine for the F-35 fighter is included; we haven’t heard if Boeing will be successful in getting more production included for the C-17, but Gates wants this and the F-35 dual sourcing vetoed if they are, and this means vetoing the entire appropriations bill, including the KC-X amendment.)
If a KC-X provision does survive that somehow directly relates to the WTO, then EADS has recourse.
“There is always recourse,” a person familiar with the situation tells us. “But I do not believe this provision will stick, even if it is a benign reporting requirement. Ultimately, the contract decision will happen before this becomes law anyway. Also, I believe DS353 (EU vs Boeing] will be issued sooner rather than later — well before the bill would make it into law and assuming this weak reporting amendment stays in the bill.”