US Congress deals blow to EADS over tankersFT.com 05/28/2010
The US House of Representatives on Thursday night adopted a measure to force the Pentagon to consider the role of illegal subsidies in the multibillion-dollar contest between Boeing and EADS to sell refuelling aircraft to the US Air Force.
The decision deals a potential blow to EADS, the European aerospace and defence conglomerate. A recent decision by the World Trade Organisation in a dispute over large aircraft found that the European company had received subsidies.
Under the congressional measure, the Pentagon may have to adjust EADS's bid to account for any funds it received in violation of trade treaties, which could give its rival Boeing an edge in the competition.
However, the measure must pass several other steps, including reconciliation with a companion defence bill in the Senate, before it becomes law.
The defence department has strenuously resisted efforts to insert international trade disputes into its procurement process, noting that under trade rules it was not allowed to penalise EADS for receiving alleged subsidies.
The amendment will further politicise an already fraught acquisition process that has dragged on for a decade, gone through three iterations and been marred by international political spats and serial accusations about US protectionism.
In 2008, EADS and Northrop Grumman, its US partner, won a competition to supply an initial 179 tankers but the Pentagon cancelled the contract after complaints by Boeing were upheld. The decision led to criticism from European politicians.
Then in March this year, EADS's partner Northrop Grumman withdrew from the contest after claiming that the rules were rigged in favour of Boeing. European politicians again criticised US authorities. The Pentagon eventually extended a key deadline allowing EADS to launch a solo bid.
The amendment was sponsored by a number of US congressmen from states where Boeing has a strong presence, including Kansas and Washington. It passed by 410-8 votes after EADS supporters secured last minute changes that would allow the Pentagon to consider a parallel case proceeding at the WTO in which the US and Boeing are accused of using illegal subsidies.
Jo Bonner, a Republican from Alabama where EADS plans to build a factory if it wins the contest, said that the amendment now applied in an "even-handed way to both competitors."
Todd Tiahrt, a Republican congressman from Kansas, said it was "outrageous to even consider outsourcing thousands of jobs to a foreign company" when the unemployment rate was close to 10 per cent.
"We need an American tanker built by an American company with American workers," said Mr Tiahrt.
Boeing said it was "entirely appropriate" that Congress take steps to "prevent the US defence industrial base from suffering the same fate as the commercial aircraft industry, where illegal subsidies have contributed to the loss of tens of thousands of US aerospace jobs."
EADS said it believed that the Pentagon "should be allowed to run the fair and open competition to which it is committed. We leave it to the department to comment on the extent to which this or any legislation impacts that objective."
Separately on Thursday night, another European defence contractor, Rolls Royce, received some mixed news from Congress.
Politicians voted to continue to fund a second engine for the F-35 fighter jet that is made by Rolls and General Electric. But the Senate armed services committee left the programme out of its version of the 2011 defence spending bill.
Robert Gates, US defence secretary, has repeatedly tried to cut the programme as part of an effort to restrain spending on weapons systems, only for Congress to include the funding in defence spending bills.
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