Answer: No … and Yes

Question: Does Boeing think Airbus should be excluded from the KC-X competition on the basis of the World Trade Organization’s interim finding that the A380 received illegal subsidies?

As the headline above suggests, Boeing’s answer to that question is, well, complicated.

In late July, I interviewed a panel of Boeing experts on the WTO case: Ted Austell, VP and counsel; Tim Deaton Keating, communicator and Robert Novick, a private attorney working on Boeing’s team. Click on the link below to read the transcript of my question — and their long and complex reply.THE DEW LINE: How does Boeing expect a positive decision from the WTO to affect the KC-X competition? [ED: This is positive from Boeing's perspective, of course, and negative from Airbus' side.]

AUSTELL: I’m going to be a little bit cautious with this, and I will get some guidance here from Tim also. The competition is very important. [repeats.] The pursuit of this case predates the tanker. There have been some suggestions over the years that somehow or another the case was sought in some way to d-q [disqualify?] Airbus or EADS from competing. No. That is a misrepresentation of fact. So the competition in fact has been important. What is also important we believe is that there be acknowledgement there certainly has been some expression of interest by the Congress back to the DOD that they should look at this matter whichever way it comes out, whichever party might be found in violation of some WTO rule. There have been representations over the years made that the A330 somehow or another has been fully paid off and that should obviate in any way any suggested distortion in terms of how that input is priced. The customer will have to make that determination. What I think is important – what Boeing thinks is important – is again you’ve got an executive branch – you’ve got one side of the executive branch that has pursued diligently for a long period of time in a significant way to make sure that the trade rules are adhered to, that there’s a belief that there’s been distortion in the commercial marketplace, and that needs to change. The A330, which was developed in combination with the A340, received almost some $5 billion in subsidies. For anyone to suggest that somehow one way or the other that has not had a marked effect again I think the WTO will rule out on that. But the other side of our administrative branch of government who might be pursuing this competition has been requested by the Congress to you know – left-hand, right-hand – look at this matter and figure out how it might be materially impact the competition. I don’t think Boeing is in a position to be prescriptive about how you take that into consideration. But the various parts of government both the congress and the administration – the USTR, Commerce Department, State Department and others who work on these kinds of matters – in consultation with the DOD customer should be able to sort of find what’s in the best interests of the United States. What I will say and I’ll invite Tim to give further counsel, is that I think competition has been important and remains so. But I don’t want to say, so there’s a finding in this particular way then it should be factored in in this particular arithmetic method.

DEATON: We definitely feel that the launch aid and other forms of assistance they’ve gotten are market distorting, including the market for A330. But we have not said that the EADS/Northrop offering should be thrown out. We didn’t do it in the last round of the competition and we didn’t do it now. There are people in the government, both in the executive and government branch who have said we’ve got a case against these guys over here and we’re considering a contract award. This is something that we think smart people need to take a look at. They’ll probably bring that kind of thing up again particularly if there’s a ruling against launch aid.   

NOVICK: “Not speaking for Boeing, per se, but, from a trade policy perspective, when this issue came up a year or two ago people were saying if someone gets a subsidy they shouldn’t be allowed to compete. Well, that’s just not right. Just because you engage in practices that violate the WTO doesn’t mean you should be barred from procurement. The difference here I think is the very platform that’s being competed was benefiting from subsidy, and that’s a different – I don’t know what that leads to in terms of what we just discussed. But that’s a factual difference here that I think has made people wonder how you may unpack that a little more because should you be able to benefit from a market distortion that you created in the commercial space and then extend that into the defense space. I mean, if that’s happening, it seems appropriate to at least think about it. I think that’s the difference. If it were just, they subsidized the A380, and so therefore they shouldn’t be able to compete using the A330 platform, I’d have a real problem with that just from a trade policy matter. But where the very product had received subsidies there’s a different question. I’m not speaking of what should be done with it.”

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3 Responses to Answer: No … and Yes

  1. irtusk 13 September, 2009 at 7:59 pm #

    > If it were just, they subsidized the A380, and so therefore they shouldn’t be able to compete using the A330 platform, I’d have a real problem with that just from a trade policy matter.

    That seems rather prescient considering the leaks about the WTO ruling indicate just that (problems with the A380 but not the A330)

    If this is indeed the case, then I guess we can expect Boeing’s full support in NOT penalizing the KC-30 bid in any way, right?

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