WTO Ruling May Influence KC-X Tanker And More
WTO Ruling May Be Linked To KC-X Competition
WTO Rulings Mean Compliance For All Parties
Final WTO Ruling May Not Differ From Preliminary Report
The issue of subsidies between Airbus and Boeing is one that will reverberate for a long time - long after the WTO has ruled on both sets of complaints.
Since the interim ruling was shared between the US and Europe, much has been made as to whether both claim and counter-claim rulings should be presented between all parties, so that talks can iron out differences, as EADS Louis Gallois would like.
In reality, that isn’t going to happen - well, the talks might, but any agreement may not be a forthcoming prospect.
Complicating the issue further are US lawmakers that want the US Air Force to factor in the WTO ruling into the KC-X tanker competition. While Undersecretary of Defense Ashton Carter is partially right that the ruling is not a final one, many observers are wrong to suggest that the European case against the US should also be factored in.
There are a couple of reasons for this. Firstly, the 767 was not born out of US Government aid. The A330, built as a worthy competitor to the 767, certainly did benefit from subsidies and by default can and does, by the eyes of some US lawmakers, fall into the bracket as having shouldered less risk in coming to market.
The second key point is that the US claim against Europe, and the European case against the US are two, totally independent rulings, neither of which are linked. Two separate bodies at the WTO will rule on each case.
Image courtesy of Northrop Grumman
I had the opportunity recently to speak with Boeing’s legal counsel who is dealing with the WTO case, Bob Novick, at length on this issue and he affirmed that irrespective of the European claim against the US, Europe has no choice but to fall into compliance, before and independent of, any ruling against the US.
Of course, the media resident in Alabama are acutely unaware of this and probably worry that ultimately the USAF and DoD will have to consider the possibility of applying the WTO rulings on an airplane built with market distorting funding.
“I expect we’ll have a legal decision from the WTO sometime in the second quarter of next year, which means that whatever obligations arise as a result of the report start at that moment,” said Novick.
“There is a prohibited subsidies finding and that all other subsidies are actionable subsidies - under WTO rules, the period for correcting those and coming into compliance for prohibited subsidies has historically been three months and for actionable subsidies its six months. Some time from the second quarter of next year, three months from that point, six months from that point, the burden on Europe and Airbus to figure how they’re gonna comply will have come and gone. The US will have to decide, in light of what they [Europe and Airbus] do, if anything, what their counter-response is.
As a legal matter, there is no relationship at all between the two [complaints and counter-complaints] - they’re two completely separate sets of [WTO] panels. The outcome, there’s no off-setting. The fact is the obligation for [Europe and Airbus] to come into compliance will emerge in the middle of next year - the US will move forward and take whatever action to enforce this [WTO] decision.
The A330 is a creature of subsidies - the use of the subsidies was to obtain market share against the 767 and the Boeing Company. And now that same subsidy is getting leveraged again in the military space. We’ve had a finding that its against international rules to have given these subsidies and with those subsidies obtained market share that one shouldn’t have been able to obtain otherwise and be able to use those very same subsidies to do it all over again [in the KC-X competition] and that’s the part that’s an economic matter and a trade policy matter which is offensive.“
For those with blinkered insight, placating to the whims of an uninformed media base in Alabama, the fact remains that if the USAF waits for both the US ruling against Europe, and then waits for the European ruling against the US, then the KC-X tanker competition has more chance of being concluded in 2011 or beyond, rather than next summer.
Image courtesy of Boeing / UnitedStatesTanker.com
Further, that the 767 is not and has not been a recipient of direct state aid in the way that the A330 has further highlights the fallacy of those that want both rulings to be out in the open - so that if the USAF does want to factor in subsidies to the KC-X competition, it will have “both sides” of the WTO’s rulings as some sort of equilibrium by which to judge.
But that’s not the case.
As Novick clearly illustrates, the two cases are independent of each other, the 767 has not benefitted from Government aid as the A330 has and Airbus will, by next year, have no choice but to fall into compliance. At that stage, the USAF will have little grounds on which it can justify ignoring or not factoring in the WTO ruling to the KC-X tanker contest, particularly when the very essence of the complaint by the other half of the US Government is against illegal aid and subsidies for Airbus and its products.
If as Northrop Grumman alludes that they want out of the competition, a sole source contract to Boeing would probably be the best option to end this drawn out saga - but in the spirit of a contest, it is highly unlikely that Northrop will leave or that a sole source contract will be offered.
Senator Shelby may bizarrely believe that the USAF’s moves to keep the WTO ruling out of the tanker contest is “fair and just” however, the undisputed fact remains that the US Government, the DoD and USAF simply cannot ignore the legitimacy of the WTO’s indictment against state aid afforded Airbus as Novick pointed out.
Based on cases gone by, the final WTO ruling may not differ greatly from that which has already been made known.
“If the Air Force insists on allowing them to compete, then they should ensure a fair and level playing field by taking into account illegal Airbus subsidies,” said Kansas-based Republican Congressman Todd Tiahrt in a letter to President Obama.
The letter further states that the USAF “totally ignores the clear evidence that illegal European subsidization is injurious to both our economy and our national security industrial base.”
Taking all this into account, it is easy to see why Gallois’ tactic of engaging in talks to reach agreement with the US is an attractive one, but he fails to advise the lemming-like audience that EADS/Airbus has very little time in which it has to address the WTO charges.
Talks will not stop the compliance he has to oversee and enforce lest the US decide to wade in and enact punitive measures that Europe may not be able to stomach.
Equally, when the time comes for the European ruling, the US too will have to fall into compliance.
77 comments November 4th, 2009
