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UPDATE 1-Bill would make Pentagon weigh WTO rulings
May 12, 2010 / 12:30 AM / 7 years ago

UPDATE 1-Bill would make Pentagon weigh WTO rulings

* Boeing backs legislation by Kansas senator

* Murray urges Pentagon to consider subsidy ruling

* EADS counters: Rallies don’t build airplanes

(Recasts with legislation from Kansas senator, adds byline)

By Andrea Shalal-Esa

WASHINGTON, May 11 (Reuters) - Boeing Co (BA.N) is actively promoting a bill that would force the Pentagon to consider World Trade Organization decisions when deciding on defense contracts like a $50 billion airplane competition between Boeing and its European rival, Airbus parent EADS EAD.PA.

Kevin Rozelsky, Boeing’s director of legislative affairs, has approached some U.S. senators about supporting the bill, which Kansas Republican Senator Sam Brownback plans to introduce on Thursday, according to an email obtained by Reuters and verified by a congressional aide.

Boeing and its supporters have argued that the WTO’s recent finding that Airbus benefited from illegal subsidies should be factored into the U.S. Air Force competition for a 179 new aerial tanker planes used to refuel warplanes in flight.

Pentagon officials say they cannot consider the ruling in the competition because there is a countersuit against the United States by the European Union, and neither matter will be completely resolved before the contract is awarded.

Any move by Washington to penalize one side before all appeals have run their course could be seen as an illegal tariff under the terms of membership in the world trade body, said one official closely following the issue.

The competition between Boeing and EADS has clearly heated up in recent weeks with both companies putting advertisements in The Washington Post and on billboards in the Washington area.

Brownback’s legislation would force the Pentagon to factor in WTO rulings when comparing prices for all weapons contracts, not just the tanker deal, according to the Boeing email.

If WTO determines that a company benefited from an “actionable” subsidy, the bill would require the Defense Department to add that cost to the bidder’s price, it said.

BOEING CONCERNED ABOUT BEING UNDERBID

Boeing argues that it cannot compete fairly with EADS since EADS has benefited from billions of dollars of past subsidies to the A330 aircraft on which its refueling tanker is based.

“We’re very concerned that the illegal European subsidies are going to allow Airbus to underbid Boeing significantly, and then in a fixed-price contract, they win the day,” Rozelsky said in the email.

But the European Union argues that EADS has long since repaid launch aid for development of the A330, and says Boeing has also benefited from U.S. state tax breaks.

One congressional aide, who was not authorized to speak on the record, said the email from Boeing raised some eyebrows on Capitol Hill since the company was contacting senators who had not yet even been approached by the legislation’s sponsor.

About 20 workers joined lawmakers from Washington state for a small rally at the U.S. Capitol building on Tuesday, where Senator Patty Murray, a Washington Democrat, blasted the Pentagon for giving EADS 60 extra days to submit a bid.

Murray said the Pentagon should consider the WTO ruling in the tanker competition, and needed to award a contract soon.

“Holding this competition up to allow an illegally subsidized foreign company to bid is bad for our men and women in uniform, our workers, taxpayers, and our economy,” said Murray, who stood above a sign that said “Fairplanes.”

Murray, joined at the event by Senator Maria Cantwell and Representative Rick Larsen, both of Washington state, said her state would get 11,000 new jobs if Boeing won the competition.

Boeing says its 767-based tanker would support about 50,000 jobs across the country.

EADS, which says its tanker proposal would create around 48,000 jobs, responded to the Boeing rally on Tuesday, saying, “Rallies don’t build airplanes.”

EADS, then partnered with Northrop Grumman Corp (NOC.N), beat out Boeing to win the last tanker deal but it was canceled after government auditors upheld a Boeing protest.

Northrop decided to skip the competition after the Air Force revamped its rules for the bids, saying the Pentagon’s new approach favored Boeing’s smaller 767-based tanker.

After Northrop dropped out, the Pentagon gave EADS 60 more days to prepare a proposal on its own, extending the deadline until July 9. But it still plans to pick a winner this fall.

Reporting by Andrea Shalal-Esa, editing by Gerald E. McCormick, Phil Berlowitz

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