International Economic Law and Policy Blog

Airbus vs. Boeing vs. China

The Economist has an article about how the Chinese are planning to develop aircraft to compete with Airbus and Boeing.  The article noties:

Although Boeing huffs and puffs about ensuring that China sticks to WTO rules banning market-distorting subsidies, both it and Airbus are studiously polite about the prospect of a new rival. Boeing says that competition has always been good for the business, and an Airbus spokesman describes it as “a natural ambition” for a country of China's size to make big jets.

My first point is a bit nit-picky, but I'm going to make it anyway.  I know that you need to use short-hand when writing these kinds of articles, but isn't saying that WTO rules ban "market-distorting" subsidies a bit of an exaggeration?  Obviously they can't flesh out the entire SCM Agreement here, but perhaps "trade-distorting" would be more accurate.  If the rules banned "market-distorting" subsidies, wouldn't that prohibit just about all subsidies?

Aside from that, I found the part about Airbus and Boeing being "polite" in the face of potential Chinese competition to be interesting.  Are they really going to let this happen without a trade fight?  I would not have thought so, especially given their experience with trade litigation.  On the other hand, one reason the answer could be yes is provided in the final paragraph of the piece:

... manufacturing big commercial aircraft has ceased to be a national enterprise. Boeing and Airbus increasingly rely on global supply chains and risk-sharing partners, some of which are involved from the design stage to produce not just components, but entire sections of planes.

It may be that in the future, just about every country will have a stake in producing all of the big aircraft, meaning there will be nobody to bring a complaint.

Obama on the Tanker Deal

From the AP:

An Iraq war veteran at the town hall asked [Senator Obama's] opinion of a recent decision by the Pentagon to award a a $35 billion Air Force tanker contract to a consortium led by Airbus, located in Europe, over a bid led by U.S.-based Boeing.

Obama said he had concerns about the deal but an investigation was warranted to find out more.

"I don't mind the Pentagon procuring from other countries but when you've got such an enormous contract for such a vital piece of our U.S. military arsenal, it strikes me that we should have identified a U.S. company that could do it," he said, though he added that he might conclude the decision was justified if it turns out Airbus' bid was 10-15 percent better than Boeing's.

So as a general matter, he thinks having the Pentagon buy from foreign sources is OK.  That's a fairly pro-trade sentiment.  In this specific instance, though, he thinks the tankers are crucial for national security, so maybe it's not OK, although perhaps it would be if the foreign product was significantly better.  That's less pro-trade, but still not completely anti-trade.

Obama/Clinton and Boeing vs. McCain and Airbus

As if the Boeing vs. Airbus controversy on the Air Force tanker deal wasn't political enough already, with Obama and Clinton criticizing the decision to award the contract to a group that includes Airbus, now there's this:

Angry Boeing supporters are vowing revenge against Republican presidential candidate John McCain over Chicago-based Boeing's loss of a $35 billion Air Force tanker contract to the parent company of European plane maker Airbus.

...

... Boeing supporters in Congress are directing their wrath at McCain, the Arizona senator and nominee in waiting, for scuttling an earlier deal that would have let Boeing build the next generation of Air Force refueling tankers.

Whoever the Democratic nominee is, it seems likely that this will be an issue in the Presidential campaign, with the Democratic candidate criticizing McCain for "outsourcing" U.S. military aircraft.  Something along these lines, I would guess:

House Speaker Nancy Pelosi, D-Calif., echoing the thoughts of many congressional Democrats, sees McCain's role in a less positive light. She said the earlier tanker deal was "on course for Boeing" before McCain started railing against it.

"I mean, the thought was that it would be a domestic supplier for it," Pelosi told reporters. "Senator McCain intervened, and now we have a situation where the contract may be — this work may be outsourced."

When you combine this with McCain's uncompromising support for NAFTA, trade and globalization could be as big a deal in the general election as it has been in the Democratic primaries.

ADDED:  And now there's this:

The Associated Press reported that some of [McCain's] current advisers lobbied last year for the European Aeronautic Defence and Space Co., the parent company of plane maker Airbus. EADS and its U.S. partner Northrop Grumman Corp. beat Boeing Co. for the lucrative aerial refueling contract.

...

Two of the lobbyists working on the EADS account gave up their lobbying work when they joined McCain's campaign last year. A third, former Texas Rep. Tom Loeffler, lobbies for EADS and serves as McCain's national finance chairman.

Something New to Demagogue About

All of this NAFTA bashing is getting tiring.  Isn't there something else to demagogue about?  Hey, how about this:

As has been widely reported, the Air Force stunned almost everyone yesterday by deciding to award its huge, $35 billion contract for new airborne refueling tankers to a partnership formed by Northrop Grumman, the Los Angeles-based company, and EADS Inc., the European maker of Airbus airliners.

Boeing, headquartered in Chicago but with a large workforce in Washington State, was the big loser. Boeing had said that if it got the contract to build the new tanker based on its 767 airliner, it would provide enough work to keep 40,000 U.S. workers busy.

The article notes helpfully:

Because of the jobs issue, this Air Force decision seems tailor-made for Sen. Barack Obama and Sen. Hillary Clinton who in their increasingly populist appeals have made the loss of American jobs a major presidential campaign issue, especially as they compete for labor votes during the primaries.

With Obama being from Illinois, and Boeing having its headquarters in Chicago, we could be hearing about this soon.

UPDATE:

Well that didn't take long, although in fairness it was a somewhat measured response:

Sen. Barack Obama expressed his disappointment Sunday that Northrop Grumann and the parent company of Europe’s Airbus beat out Chicago-based Boeing Co. for a contract worth up to $40 billion for the next generation of U.S. Air Force refueling tankers.

Obama said it was hard for him to believe “that having an American company that has been a traditional source of aeronautic excellence would not have done this job.” He preempted his comments by saying that he had not examined the deal carefully.

MORE: From Hillary:

As Air Force officials met with angry members of Congress, presidential candidate Hillary Clinton said in a statement, "I am deeply concerned about the Bush administration's decision to outsource the production of refueling tankers."

New York Democratic Sen. Clinton said it was "troubling" that the contract would go to "a team that includes a European firm that our government is simultaneously suing at the (World Trade Organization) for receiving illegal subsidies."

Airbus vs. Boeing: In the Courts and In the Market

The Airbus-Boeing WTO dispute is plodding along.  It's fine with me if the panels take their time.  I'm not sure I'll ever be quite ready to digest the monstrous panel reports that are likely to come out of this dispute.

In the meantime, Airbus and Boeing continue to compete in the marketplace, with the WTO dispute playing an important background role.  From The Economist:

... On February 13th the United States Air Force (USAF) will decide which of two contenders—Boeing or a consortium of Northrop Grumman and EADS—will supply an initial tranche of 179 aerial-refuelling tankers as it starts to replace its 530 elderly KC-135 aircraft.

...

Given the air force's earlier preference for the [Boeing] 767, it is tempting to dismiss the chances of the Northrop-EADS partnership, which is offering a tanker version of the Airbus A330. But the political pressure for a genuine competition has made it harder (though not impossible) for Boeing to play the patriotism card. As there are only two makers of commercial jets that can meet the USAF's requirements, there would have been no contest had EADS, the Franco-German aerospace company that owns Airbus, not been convinced that it was in with a chance. But with the contest reaching its final stages, the attempts by both sides to prove that theirs is the better plane for the job have become increasingly acrimonious.

...

Amid the fog of claim and counter-claim, there is little doubt that the KC-30 is the more capable aircraft. But whatever the air force decides, Congress will have the last word—and there its prospects look fairly bleak. More than 60% of the value of the KC-30 would be sourced in America, and EADS would also build commercial freighters on the KC-30 assembly line in Mobile, Alabama. But Boeing's proposal would provide more jobs for Americans.

The fact that Democrats are now calling the shots in both houses in Congress also plays to Boeing's advantage. Patty Murray, a senator from Washington, Boeing's home state, makes it clear she will use a simmering row between Airbus and Boeing at the World Trade Organisation to knock the KC-30 out of the sky. Says the flag-waving Mrs Murray: “American taxpayers should not reward a company that has spent decades hurting American workers, and we should not turn a critical military contract over to a foreign company that is unfairly supported and subsidised by foreign powers.”

If Boeing wins the contract, it would not be too surprising if the EU adds a new item to its WTO complaint.

The DS316 Aircraft Panel Hearing

Following-up on Roger Alford's post over at Opinio Juris and Tomer's post on this blog, the WTO panel hearing on one part of the Aircraft dispute (DS316, involving alleged subsides to Airbus) took place last week.  As Roger and Tomer noted, the hearing was transparent to a limited degree, in that a tape of parts of the hearing could be viewed afterwards at WTO headquarters.  Unfortunately, the most interesting part, the questions from the panel and the parties' answers, was not included in this viewing.

In an effort to improve transparency in a small way, we have in the past enlisted people to attend the viewings of these hearings and report about them on this blog.  This time the reporter was Valéria Guimarães de Lima e Silva, who is pursuing a Masters in International Law and Economics at the World Trade Institute in Bern, Switzerland (she also holds a PhD in International Law from the University of São Paulo (USP), Brazil).  If anyone wants to follow-up with her about the viewing, you can contact her at valeria_glsilva@yahoo.com.br.  Her report follows.

Dance of the Seven Veils

The second meeting of the Airbus dispute panel (DS316), scheduled to conclude today, I believe, will be aired to the "public" through "an opportunity to view a videotape, at a date to be announced" (see USTR announcement)(hat tip: Roger Alford at Opiniojuris).

To an uninformed bystander like myself, there seem to be a number of anomalies in this procedure. First, the main concern apears to be "business confidential information" (BCI"). Yet representatives of the only parties seriously involved as producers of large civil aircraft will be in the room during the hearings themselves. So if a party chooses to include BCI in its opening statement, comments or questions, most of the potential damage would already have been done. Unless they are concerned about downstream suppliers and consumers - but I doubt that BCI should be relevant in this respect. Second, if the hearing will be canned and edited before the public is exposed to it, why in this digital era of podcasts, is it truly necessary to physically attend the viewing? Perhaps Geneva is in search of shows and attractions to draw in crowds of tourists (those flying in specially to view the Airbus videotape might be interested in the July schedule of cultural events...), but I doubt this would be it. Third, why is the viewing only open to "those individuals who apply and are accepted to the WTO"? And what are the criteria for approval (the USTR statement only requires information relating to identity of applicants)? Why are they not made available in advance? For example, would journalists be acceptable? or only people who have a personal interest in the case or represent unions or corporations who do?

I don't know much about the public-private political economy in this case, but my hunch is that it is the driving force behind the procedure of this "public viewing", which seems more tailored to exclusiveness than openess. More generally, however, it sets a bad model for other more obviously socially sensitive cases.

In the dance of transparency, for every veil removed, there appears another one instead. If they will ever be removed entirely, the truth is that what will be revealed is not so exciting to non-specialists. Maybe it is better to just lay back and watch the dance.

T.

      

A "Glimpse" at the Aicraft WTO Panel Meetings

As stated in news reports, the WTO will offer a "glimpse" at the upcoming panel meeting in the aircraft case (the one brought by the U.S. against alleged subsidies to Airbus).  The actual meeting will be tomorrow.  However, the "glimpse" will occur on Thursday, via closed circuit transmission.  It will be "carefully censored as many of the allegations involve information Brussels says is confidential."

As with the Hormones Sanctions panel meetings, Anna-Emilia Autio was once again kind enough to agree to attend and report on the meeting.  I will post her notes as soon as she has a chance to digest everything.

Airbus, pre-WTO expired programmes and retroactivity?

I have noticed that the United States mentions many pre-WTO programmes (namely pre-1995) in its panel request against Airbus. Most likely, some of  these programmes were expired  when the WTO  entered into force.  I wonder if the panel will accept to consider these pre-WTO expired programmes. In Upland Cotton, the AB confirmed that expired programmes could still be considered by a panel if they are “affecting” in the present the complaining party through their “lingering effects”. However, in Upland Cotton the programmes were post-WTO in the sense that they expired after 1995. Would the Airbus panel adopt the same reasoning and accept to consider expired pre-WTO programmes on the basis on their “lingering effects” in the present? If yes, would this amount to a retroactive application of the SCM?

Airbus-Boeing: Now It's A Bidding War

It's rare that the U.S. Department of Defense gets involved in trade disputes, but I guess Airbus-Boeing is such a big dispute that it's drawing everyone in.  According to Reuters, as part of the Air Force's "multibillion-dollar competition for aerial refueling tankers," Boeing is competing with the team of Northrop Grumman and EADS, the majority owner of Airbus.  In an initial "request for information" in April, the Air Force "asked the companies to identify any subsidies they received and explain any potential impact of the WTO dispute between Boeing and Airbus on their bids."  Reuters notes that "[a]nalysts have said the Pentagon's request could force Airbus, 80 percent owned by EADS, to yield information that could be used against it in the WTO complaint."

Senators McCain and Shelby are not happy about this request, and Shelby "said he told Deputy Defense Secretary Gordon England last week that it was 'unfair' to ask bidders about the dispute before the World Trade Organization, and said the Senate should hold hearings about the unprecedented move."

The Washington Post is also reporting on this, and has some additional background.

It's hard to say at this point whether this issue will blow over or blow up, but I'll update this post with further developments as they occur.

UPDATE: As explained here and here, the Northrop Grumman team has pledged to build a tanker assembly plant in Mobile, Alabama if they win at least part of the contract, hence the involvement of Senator Shelby. Several Alabama Congressmen, including Shelby, are scheduled to meet with Gordon England today.

UPDATE II: A few more details now that Shelby and others have met with Gordon England.

UPDATE III:  According to this report, the decision on whether to ask about the WTO issues has been put off until the final request for proposal is submitted:

The Air Force said the draft request for proposal doesn't directly ask companies to detail the effects of WTO disputes, as industry was asked in a request for information earlier this year. Instead, it asks companies "whether the final RFP should be modified" to include WTO concerns.

Airbus-Boeing Legal Wrangling

A few weeks ago, Joel posted about how Airbus has filed a motion in DC Superior Court to enjoin Wilmer Hale and Marco Bronckers from representing Boeing in the WTO aircraft disputes, in light of Bronckers' earlier work for Airbus. Airbus later challenged Charlene Barshefsky's role in the case as well.

According to a news report, Judge Braman of the DC Superior Court has now ruled as follows:

At this month's hearing, Braman dismissed the complaint against Barshefsky. He said Airbus didn't have standing to complain about her involvement with Boeing in D.C. Court because the court isn't handling any other aspect of the trade battle.

With respect to Bronckers, Braman said he could not consider the complaint unless the WTO rules on whether it will consider pre-1992 aid in the trade battle. Bronckers stopped working for Airbus before the U.S. and Europe reached a 1992 agreement on civil aircraft subsidies that was in force until the latest round of trade litigation began.

If the WTO case is limited to post-1992 government aid, those limits also should apply to questions about legal counsel, Braman said. That would make any premature rulings on Bronckers "an instrument of injustice," Braman said, according to a transcript of the hearing.

I'm not quite sure I follow the court's reasoning on the Barshefsky issue as set out in the news report.  I'll update this post if other news reports clarify it, or if I can get hold of the opinion.

As for whether the issue would be raised before the WTO panels, Airbus had this to say:

Airbus said it is considering its options for how to proceed. The company could choose to ask the E.U. to bring up its complaint about Barshefsky at the WTO, although Boeing's choice of counsel has so far not been a topic of debate between U.S. and E.U. negotiators.

Airbus v. Boeing: Some Early Discussion

For those following the Airbus-Boeing WTO dispute, AEI is holding an event titled "Boeing vs. Airbus: The Plot Thickens" on Thursday, July 6.  As stated in the event description:

Given the rapidly changing competitive situation, the slow pace of the WTO judicial process, and the increasingly hardened diplomatic position of the two sides, AEI has assembled a group of experts to assess recent economic and political developments, suggest likely scenarios for resolving the dispute, and discuss the chances that the situation will descend into an all-out trade war.

More information here. 

The event is at AEI's headquarters in DC, but for those located elsewhere the video will be made available soon thereafter.  Check here for the video in the days following the event.

Airbus Plays Hardball

Airbus has filed a motion to enjoin Wilmer Hale and Marco Bronckers from representing Boeing, in light of Bronckers' earlier work for Airbus.    Interestingly, the basis for Airbus' claim is the Washington DC Rules of Professional Conduct, which I suppose are being applied to the Wilmer Hale firm.  There may be some questions about the applicability of these rules to a Brussels lawyer involved in Geneva litigation.  From the Wilmer Hale website, it does not look like Bronckers is admitted in DC.