WTO dispute takes centre stage in USAF tanker competition

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The trade dispute between Airbus and Boeing has taken a central role in the fight to build the KC-X tanker for the US Air Force.

Northrop Grumman and EADS North America are offering the KC-45, an Airbus A330-200 modified into a tanker. Boeing is considering both the KC-767 and KC-777, depending on how the USAF sets the requirements for the potentially 179-aircraft order.

A draft request for proposals, expected to be released within weeks, will set the requirements based on the tanker mission, but some of Boeing's allies in Congress want an interim ruling by the World Trade Organisation stating that Airbus benefited from illegal subsidies to factor heavily into the selection process for KC-X contract.

Secretary of the Air Force Michael Donley has said he opposes making any changes to the unreleased draft RFP to account for the WTO's confidential interim report. It also remains unclear what legal ability the Department of Defense has to wrap international trade disputes into the selection process for a weapon system.

However, even as the WTO considers a similar case against Boeing, the US manufacturer's allies in Congress appear intent on making the confidential interim ruling a major factor in the USAF's decision.

On 15 September, Senator Patty Murray, who represents Washington state, wrote to Secretary of Defense Robert Gates, expressing her "expectation" that the WTO ruling will be factored into selection process for the KC-X deal.

 
© Chuck Schroeder/Boeing
Boeing is considering upping its offer to use the KC-777

Murray described the issue as a matter of maintaining the health of the domestic aerospace industry. "I want to ensure the actions of the DoD do not unintentionally penalise our domestic industry," Murray wrote.

A spokesman for Gates has said the impact of the WTO ruling on the KC-X contract competition is still being examined within the Pentagon.

Meanwhile, a group of 47 Congress members, led by Representatives Rick Larsen, of Washington, and Todd Tiahrt, of Kansas, have sent a letter to President Barack Obama to also press for making the WTO decision a factor in the KC-X selection.

The letter asks the Obama administration to reconcile its trade policy that accuses Airbus of harming a domestic industry with a defence procurement process that remains neutral in acquisition matters involving trade disputes.

"Our federal trade policies and defence procurement policies should work in co-ordination, not conflict," Larsen says. "We believe that American taxpayers must not be forced to foot the bill for products which benefited from illegal subsidies."

The Northrop/EADS team's response has so far come from only a single voice in Congress, with Senator Richard Shelby of Alabama warning that "Boeing's allies" in Congress are calling for "vigilante justice".

 
© Northrop Grumman
The A330-based KC-45 is on offer from Northrop and EADS

On 16 September, Shelby also wrote to Gates to argue on behalf of Northrop's position in the KC-X competition. Shelby reminded Gates that the preliminary WTO ruling is only one of two parallel claims filed against Airbus and Boeing. The case pending against Boeing will likely be completed late in the fourth quarter, Shelby wrote.

Shelby also warns that wrapping the WTO trade disputes into defence contract awards sets a dangerous precedent for both sides. "It would be a grave mistake, with severe consequences to both our economy and trade relations, to use a prelimary WTO report as justification for restricting the ability of our military to procure the best equipment possible," Shelby wrote.