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Boeing backers eye adding trade to tanker contest

* U.S. draft request expected later this week

* Some U.S. lawmakers weighing legislative action

* Believe WTO ruling against Airbus must be considered

WASHINGTON, Sept 22 (Reuters) - Lawmakers who back Boeing Co BA.N said they were considering legislative action to ensure the Pentagon did not exempt Airbus parent EADS EAD.PA from U.S. export restrictions and other laws in a $35-billion refueling aircraft competition that resumes this week.

Representative Todd Tiahrt, a Republican from Kansas -- where Boeing has a big plant -- said on Tuesday he expected to see a draft request for proposals for the new competition on Thursday.

The Air Force's third attempt to begin replacing its aging KC-135 tankers is being closely watched by lawmakers supporting Boeing, and those backing a rival bid by Northrop Grumman Corp NOC.N and Europe's EADS.

Northrop won a contract for 179 tankers in February 2008, but the Pentagon canceled the deal in September 2008 after government auditors found the Air Force had not followed its own rules in evaluating the bids.

Tiahrt said the Air Force needed to take into account a preliminary World Trade Organization ruling, that concluded Airbus’ A330 and A340 planes benefited from about $5 billion in illegal subsidies, when deciding which tankers to buy.

He said the subsidies had already given Airbus an “unfair advantage” in the commercial marketplace, costing Boeing jobs in the United States. Now it was crucial to ensure that Boeing was not disadvantaged in the tanker competition as well.

“That’s why I think it’s important that they include recognition ... and financial acknowledgment of these illegal subsidies,” Tiahrt told reporters after touring a demonstrator of the cockpit for Boeing’s 767 tanker outside the Capitol.

IRANIAN HELICOPTER SALES?

Tiahrt said the Pentagon previously exempted the Northrop bid from the Foreign Corrupt Practices Act, export restrictions, cost accounting standards, and rules on the foreign content of specialty metals, and should not be allowed to do that again.

He said EADS had pitched a small military helicopter at a recent air show in Iran, raising concerns that it was leveraging work done on the U.S. Army’s UH-72 Light Utility Helicopter into helicopter sales to a U.S. enemy.

EADS spokesman Guy Hicks said his company scrupulously adhered to every U.S. law that governs foreign sales and the protection of national security and military technologies, including the Foreign Corrupt Practices Act.

He said EADS was not marketing a version of the U.S. Army helicopter to Iran, and any foreign sales of that helicopter would be led by the U.S. government.

Northrop spokesman Randy Belote said he was puzzled that lawmakers were raising these issues again since they had been addressed and debated during the last competition.

“Boeing’s supporters must believe that disqualifying Northrop Grumman’s tanker offer is the only way to guarantee a Boeing win, which implies that that they feel Boeing won’t have the best tanker for the warfighter,” Belote said.

LEGISLATIVE SOLUTIONS

Depending on how the Air Force tanker request looks, Tiahrt and other lawmakers could act to ensure the trade issue and waivers are addressed in the new competition.

“We will look at legislative solutions,” said Representative Rick Larsen, a Democrat from Washington, where Boeing has its largest manufacturing facilities.

The Air Force exempted the trade issue from the last competition and officials say the recent WTO ruling does not require changes to the draft request for proposals.

Some details of the WTO ruling have leaked out, but there are differing accounts.

Boeing supporters say the preliminary WTO report upheld the U.S. view that Airbus received illegal subsidies to the detriment of Boeing, while Northrop backers say it concluded a European loan mechanism was in fact legal.

European Union Ambassador John Bruton said on Monday the WTO ruling concluded launch aid was not automatically illegal, but depended on the conditions under which it was given.

Scott Hamilton, defense analyst with Leeham Co, said Boeing supporters should be cautious about playing up the WTO issue, since a separate European case against alleged illegal U.S. subsidies to Boeing was also nearing an end.

“Be careful what you ask for,” Hamilton said. “I know Northrop will bring the WTO up in the event Boeing is called offside. Then what? Buy Russian?” (Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn)

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