Now that the World Trade Organization has ruled that European airplane maker Airbus has unfairly benefited from four decades of government subsidies, all of the players in the long-running drama to award a contract for a new generation of air refueling tankers have been called out.
Boeing originally won the $40 billion contract, but it was yanked when a criminal investigation turned up instances of corruption. The Pentagon then awarded the contract to Northrop-EADS, but that was nullified because the Pentagon failed to follow its own guidelines. Now, the WTO has ruled that without the below-market loans from various European governments, Airbus could not have launched all of its A300 model planes.
The ruling includes the A330, which is the plane the European Aeronautic Defense and Space Co. is putting forth in its U.S. tanker bid. EADS is the parent company of Airbus.
Pentagon officials have said that trade rulings would not figure into its selection, but the questionable loans could have helped EADS enter a lower bid. Boeing claims that this government aid is unfair, but it faces its own WTO ruling this month on whether it has been helped via subsidies, such as state aid and tax breaks.
While the political case for awarding the contract to Boeing just grew stronger, the Pentagon still must decide based on its needs. However, if that were the sole factor, Boeing would have kept the original contract. It didn’t because of the prospect that insider dealing had tainted the process. It wouldn’t be fair to penalize Boeing for its misdeeds while ignoring the sweetheart loans that benefited Airbus.
In May, the U.S. House of Representatives overwhelmingly passed an amendment calling for the Pentagon to consider unfair trade practices in awarding the tanker bid. The Pentagon has already bent over backward for EADS by extending the deadline for bidding on the contract when its partner Northrop dropped out in March.
The tanker deal aside, other countries with subsidized airplane industries are eager to see how this plays out. The WTO has set a 90-day deadline to eliminate the subsidies, but the trade organization doesn’t have enforcement powers. If Airbus doesn’t suffer any consequences, then Brazil, Canada, Japan, China and Russia could unfairly threaten Boeing’s market share. At that point, the U.S. government would have to choose whether to start a trade war, subsidize Boeing, or watch it lose out to global competitors.
The WTO’s ruling is significant. The Pentagon ought to take note.