By Emelie Rutherford

Boeing [BA] supporters in Congress argued last Friday that as the Pentagon prepares to release the solicitation for the Air Force tanker it cannot ignore the World Trade Organization’s preliminary finding that some European government subsidies to rival Airbus were improper.

Northrop Grumman [NOC] and European Aeronautic Defence and Space Co. (EADS) backers countered that the in-process trade dispute should not impact a Department of Defense (DoD) procurement matter.

A WTO panel issued an interim report last Friday on the United States’ challenge to European Union subsidies to Airbus. EADS, Airbus’ parent company, is teamed up Northrop Grumman to compete against Boeing for the aerial-refueling tanker contract in a contest expected to resume this month.

The United States is challenging European government financial support to France-based Airbus, including launch aid loans for developing aircraft. Another WTO interim report is expected in the coming months on the European Union’s counter-complaint that Boeing unfairly benefitted from U.S. government funding, both federal and state.

The WTO’s preliminary findings from last Friday, according to people briefed on the confidential report, state at least some of the Airbus subsidies violated WTO rules. The U.S. Trade Representative’s (USTR) office confirmed it received the 1,000-page report mid-day last Friday but would not comment on its contents. Final WTO decisions, often released several months after interim reports, are public and subject to appeal.

House defense appropriator and Boeing supporter Rep. Norm Dicks (D-Wash.) argued last Friday that “it would be inconceivable for the Defense Department to issue its ‘Request for Proposals’ (RFP) for a new Air Force refueling tanker without including a provision which recognizes the ruling issued today by the WTO panel: that these Airbus airframes have benefitted from illegal subsidies that gave them an unfair advantage in global sales.

“The tanker contract must be awarded on the basis of a level playing field, and because of today’s ruling that means it must account” for the allegedly improper European subsidies, Dicks said in a statement.

Before the WTO’s decision was released last Friday, followers on Capitol Hill expected it to be in the United States and Boeing’s favor. Aides for lawmakers backing Northrop Grumman-EADS in the tanker fight downplayed the WTO decision’s relevance in the tanker contest.

Northrop Grumman-EADS supporter Sen. Richard Shelby (R-Ala.) cautioned it “is important to remember that this preliminary report pertains to (an) ongoing dispute involving civil–not military–aircraft.”

“Whatever its findings, they should not affect the upcoming tanker acquisition, and must not divert our focus from the most important consideration in that task–providing the warfighter with the best, most capable aircraft,” Shelby, a Senate defense appropriator, said in a statement. “Any attempt to conflate these two separate processes detracts from that paramount goal.”

Northrop Grumman officials maintained last week the WTO’s interim decision should not impact the tanker competition, and Airbus North America Chairman Allan McArtor said his company is always concerned when “Congress starts beating the drums of protectionism.” Boeing, meanwhile, said it backs the U.S. case against Airbus but is agnostic about whether the issue should be included in the tanker solicitation (Defense Daily, Sept. 2; Sept. 4).

Boeing booster Sen. Patty Murray (D-Wash.), a Senate defense appropriator and member of her chamber’s leadership, said the WTO’s reported interim decision “raises major questions for the U.S. Department of Defense” as it prepares to solicit bids for the tanker.

If “DoD wants a truly fair competition, it needs to start with competitors that play by the rules,” Murray said last Friday in a statement. “DoD needs to answer to how this violation of WTO rules will be considered in the competition for the vital aerial refueling tanker.”

Rep. Todd Tiahrt (R-Kan.) argued the WTO’s preliminary ruling, on which he was briefed last Friday, “further demonstrates the French tanker should have been disqualified because of illegal subsidies.”

“American workers should not be placed at a competitive disadvantage by illegal subsidies,” Tiahrt, a Boeing supporter and defense appropriator, said in a statement. “The new Air Force tanker RFP must reflect this reality.”

The tanker contest has inflamed passions on Capitol Hill for years.

The Pentagon had awarded the tanker contract to Northrop Grumman-EADS last year, but cancelled it after Government Accountability Office sustained Boeing’s protest of the deal. The DoD has delayed starting a new competition since then, but is expected to issue a new draft request for proposals this month.

House Armed Services Committee members helped add language to the FY ’09 defense authorization act last year that requires the Pentagon assess the impact subsidies have on the tanker competition if the WTO’s final findings render them illegal.

The law states: “The Secretary of Defense, not later than 10 days after a ruling by the World Trade Organization that the United States, the European Union, or any political entity within the United States or the European Union, has provided a covered subsidy to a manufacturer of large commercial aircraft, shall begin a review…of the impact of such covered subsidy on the source selection for the KC-45 Aerial Refueling Aircraft Program.” A “covered subsidy” would be one found to violate the WTO’s Agreement on Subsidies and Countervailing Measures.

Under the law, the DoD would have to deliver any such subsidy-tanker review to Congress 120 days after the WTO completed all relevant rulings.