September 25, 2012
A huge transatlantic clash over trade subsidies could sour efforts to get a $45 billion merger of Europe’s EADS and BAE Systems Plc approved in the United States, former U.S. officials said.
After seven years at the World Trade Organization, the subsidy dispute pitting U.S. aircraft maker Boeing Co against EADS unit Airbus, is edging towards the possible imposition of sanctions just as Britain’s BAE Systems prepares to seek crucial U.S. support for the merger.
With a big local U.S. presence, BAE must prove that U.S. national security interests would be protected if it ties up with EADS, which is controlled by two nations - France and Germany - whose relations with Washington are less cosy than Britain’s.
All eyes are on rivals such as Boeing and other U.S.-based suppliers to see if they try to water down the deal to create the world’s largest defence company, based in Europe.
Boeing tried without success to inject dissatisfaction with European aid to Airbus into a bitter contest with EADS for a $35 billion contract to build U.S. aerial tankers. The contract finally went to Boeing last year.
The EADS-BAE merger faces a different review from the Committee on Foreign Investment in the United States (CFIUS), a group drawn from agencies across government, but the process could revive attention on the WTO case.
“The dynamic of the WTO case is relevant to the EADS-BAE situation in that Europe has failed in the U.S. view to comply with WTO rulings,” said a U.S. source familiar both with the WTO case and federal government approval procedures.
“If the WTO case were about hormones or gambling it would not be relevant. But it is about aircraft subsidies that can be leveraged to do economic harm to U.S. interests and could be leveraged further into the defence markets.”
The WTO dispute, which already runs to thousands of pages and is estimated to have cost well over $100 million, flared up on Monday after the U.S. said it had complied with the WTO and declared itself clean of subsidies to Boeing.