Murray asks Gates to weigh in on WTO dispute as tanker competition looms

Sen. Patty Murray (D-Wash.) is asking Defense Secretary Robert Gates to weigh in on a bitter global trade dispute, a move that could complicate an already incendiary political debate over the Air Force’s new refueling aircraft.

The Pentagon is preparing to restart a competition for the $35 billion tanker, pitting rivals Boeing and a team of Northrop Grumman-EADS North America against each other for a second time. EADS is the parent company of Airbus.

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The renewed competition will also prompt intense political discourse, and a ruling by the World Trade Organization so far has inflamed both Boeing and Airbus supporters.

The WTO on Sept. 4 issued a preliminary ruling on a complaint filed in 2004 by the U.S. government on Boeing's behalf. The U.S. accused European Union countries of providing illegal subsidies to Airbus, which has operations in France, Germany and Spain, among others.

The details of the ruling remain confidential, but Boeing’s congressional backers, including Murray, have claimed that the WTO found that Airbus received illegal loans from European governments to develop its planes. Lawmakers can request a briefing on the ruling from the U.S. Trade Representative’s (USTR) office.

Now Murray, a Senate defense appropriator, in a letter sent on Tuesday is asking Gates to detail how he is planning to handle the tanker competition in light of the WTO finding.

Gates promised lawmakers to share a draft request of proposals with them after a decision to award the contract to Northrop Grumman last year went up in flames. A draft request could be issued as early as next week.

“I anticipate that you will take a position regarding this case and the implications on the [tanker] competition,” Murray wrote. “In order to thoughtfully evaluate the draft [request for proposals], more information from your office is required.”

Murray wants to find out from Gates how the WTO ruling “that the practice of launch aid to one expected competitor has harmed another expected competitor” will be taken into account.

“I want to ensure the actions of the Department of Defense do not unintentionally penalize our domestic industry which has already lost market share, or for that matter, further injure our American workforce who has suffered job loss in this critical economic sector,” Murray said. “It is my expectation that the USTR has briefed you in detail on this case and you are taking the interim ruling and the expected final ruling into consideration.”

Meanwhile, 47 House representatives sent a letter to President Barack Obama late last week arguing that buying aerial refueling tankers from the Northrop Grumman-EADS team would reward illegal European subsidies to Airbus. Boeing has major operations in Washington state and Kansas.

Air Force and Pentagon leaders, including Gates, have stressed that the WTO dispute is not part of the acquisition process, and that the Pentagon makes its selections based on which company offers the best aircraft at a good price.

According to several media reports, Air Force Secretary Michael Donley said Monday that the trade dispute won’t be a factor in the Pentagon’s selection of a new tanker.

EADS North America CEO Ralph Crosby said earlier this month that the WTO dispute is unrelated to the tanker competition.

“Successive presidents and members of Congress of both parties have rightly determined that these issues are irrelevant to U.S. defense acquisition and have correctly refused to penalize U.S. war fighters by holding their needs hostage to an international administrative process,” Crosby said.

The Airbus 330 is the aircraft the Northrop-EADS team is offering up as the platform for the new tanker.

EADS said it repaid all reimbursable government loans related to the A330, including principal and interest. All reimbursable launch loans are carried on EADS’s balance sheet as liabilities and are listed in the company’s annual report. Pricing on both the Airbus and Boeing planes is determined through a complicated process that includes several market-driven factors.

“The WTO matter is a political issue that should not be permitted to be used to interfere with the Defense Department’s ability to buy the best refueling tanker for our war fighters,” said Randy Belote, Northrop Grumman’s VP of strategic communications.

“Our position is that it is irrelevant to the tanker program.”

A political storm erupted last year after the Air Force picked Northrop Grumman-EADS as its contractor for the new tanker contract with a potential worth of $100 billion. Boeing successfully protested the award to the Government Accountability Office.

Gates punted a final decision on the tanker program to the next administration, but then was nominated by President Barack Obama to stay at the Pentagon. The Pentagon is expected to release a new draft request for proposals this month.

As part of the first tanker competition, Air Force officials extracted a commitment from both bidders that they would not be affected by the WTO case, even if it resulted in hefty penalties.

For the second tanker competition, Congress required the defense secretary to conduct a formal review of the impact of subsidies on the tanker replacement program following any WTO decision. Gates does not have to conduct the review until the WTO reaches a decision and makes recommendations. The provision is contained in the 2009 defense authorization act, which is now law.

A final WTO decision will likely come at the end of the year, but will only take effect after an appeal process that could draw out the dispute for several more years.

Overall, the U.S. claims that about $15 billion in launch aid given to Airbus to develop new commercial aircraft is an illegal subsidy. The U.S. also argued that Airbus received another $10 billion in research, development and infrastructure help from European governments. Overall, European government support has an economic value of $200 billion over 20 years, the U.S. argued.

The European Union has filed a countersuit claiming Boeing received about $24 billion in subsidies and tax breaks from Washington state over the past two decades, plus non-repayable benefits from military and space contracts. A preliminary ruling on that case is expected next year.