Sep 11 2009

No WTO basis to block Airbus for U.S. tankers: senator

Reuters

By Doug Palmer

The United States has no grounds to use an initial world trade ruling to block the possible purchase of planes built by Airbus EADS for a U.S. Air Force refueling fleet, a senator said on Thursday.

A European loan mechanism challenged by the United States at the World Trade Organization "was ruled legal," despite claims to the contrary by lawmakers from states where Airbus rival, Boeing, has a heavy presence, Senator Richard Shelby said.

"It would be a grave mistake, with severe consequences to both our economy and trade relations, to use a preliminary WTO report as justification for restricting the ability of our military to procure the best equipment possible," Shelby told U.S. Trade Representative Ron Kirk in a letter.

Last week, the World Trade Organization issued its preliminary ruling in a five-year-old U.S. case against European government support for Airbus.

The case is part of a four-decades-old battle between Boeing and Airbus for dominance of the global market for commercial aircraft, a big source of employment on both sides of the Atlantic.

Kirk's office refused to comment on last week's decision because of the confidential nature of the report.

But lawmakers from Washington state and Kansas, where Boeing has a major presence, said the WTO ruled that the European "launch aid loans" for Airbus were an illegal subsidy under global trade rules.

They also urged the Defense Department not to award the projected $35 billion tanker deal to a transatlantic team made up of Northrop Grumman Corp and Airbus parent EADS, which is offering a modified Airbus A-330.

Shelby is from Alabama, where the Airbus-based tanker would be assembled if Northrop wins the contract.

"It's clear that the WTO found that Airbus received illegal commercial subsidies that have hurt American workers and created an uneven playing field," Washington Senator Patty Murray said on Thursday in response to Shelby's letter.

"The Department of Defense has said all along that it wants a fair and transparent tanker competition. I continue to look forward to working with them to ensure that happens," she said.

CONVERSATION ON RULING

In his letter to Kirk, Shelby referred to their conversation about the WTO ruling and noted that "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," Shelby said.

"Most importantly, as you stated in our meeting, Boeing was not materially injured by any action taken by Airbus," Shelby reminded Kirk.

U.S. sources familiar with the ruling disputed Shelby's characterization. They said the WTO had ruled European governments provided the loans on non-commercial terms and that the subsidies had indeed harmed Boeing.

There was no immediate comment from the U.S. Trade Representative's office on Shelby's letter. The WTO will make its report public in coming months.

The United States argued in its case that the launch aid loans provided by Germany, France, Britain and Spain were an illegal subsidy under WTO rules that had allowed Airbus to undercut Boeing's price and grab market share.

The U.S. Defense Department said on Wednesday it was looking at the WTO decision as it prepares to seek bids on a new fleet of Air Force mid-air refueling aircraft.

"Right now, people are looking into that, to see what, if any, impact the WTO decision would have on our dealings with Airbus and others, potentially," Geoff Morrell, the Pentagon's press secretary, told reporters.