Pentagon official: WTO ruling against Airbus not factor in tanker contest

The U.S. Department of Defense will not include a recent World Trade Organization ruling against Airbus as a factor in the Air Force tanker competition, according to the Pentagon's top weapons buyer.

Ashton Carter, the under secretary of defense for acquisition, said the U.S. government is prohibited by WTO bylaws from taking action against Airbus until the complex and long-running trade dispute is resolved.

"This is a preliminary report and does not constitute the final findings of the panel," Carter wrote of the WTO ruling in an Oct. 5 letter to U.S. Sen. Richard Shelby, R-Tuscaloosa.

Airbus, a subsidiary of the European Aeronautic Defence and Space Co., is part of a team led by Northrop Grumman Corp. battling Boeing Co. for the potential $40 billion tanker contract.

The Northrop-EADS team is proposing to assemble its KC-45 tankers at a 1,500-worker factory in Mobile if selected by the Air Force. Airbus would add assembly of A330 commercial freighters at the $600 million facility.

The Air Force did not include the WTO dispute in a draft version of its proposed bidding rules released to contractors last month.

The dispute centers on a complaint, filed in 2004 by the U.S. government on behalf of Boeing, that Airbus received illegal subsidies from European governments to produce its airplanes. The European Union has filed a countersuit claiming that Boeing has received illegal support in the form of tax breaks and NASA contracts.

The WTO on Sept. 5 issued an interim ruling that found Airbus received up to $15 billion in low-cost loans from France, Germany and Britain, in violation of international trade agreements, according to U.S. officials briefed on the confidential report.

Supporters of Chicago-based Boeing have argued that the Air Force should penalize Northrop's tanker bid in light of the WTO ruling.

"Airbus should have been disqualified from competing for the tanker contract from the start," said U.S. Rep. Todd Tiahrt, R-Kan.

Tiahrt was among a bipartisan group of lawmakers who argued in a new letter to President Barack Obama that the Air Force should consider the WTO ruling before awarding the tanker contract.

"It is clear that the illegal subsidies Airbus received gives it an unacceptable advantage in the tanker competition, and we would be remiss if we did not address this inequity," said U.S. Rep. Jay Inslee, D-Wash., one of 39 congressional officials to sign the letter.

Carter, a key administrator over the Air Force tanker contest, said the WTO case is ongoing and noted that an interim ruling regarding the EU's complaint against Boeing is expected later this year.

He said the Pentagon included language in its request for bids on the tanker contract that would protect the Air Force from any financial penalties imposed on the companies by the WTO.

Shelby said the Pentagon "made the fair and just call" in keeping the WTO case separate from the tanker contest.