Brownback Proposes WTO Penalty for DOD Competitions

UPDATE: Geoff Morrell, press secretary to Defense Secretary Robert Gates, says that adopting this legislation would put the U.S. at odds with its obligations as a member of the World Trade Organization. "As members of the WTO, we are not permitted to take unilateral retaliatory action for violations of the trade regulations. That is the purview of the WTO. If we were to do so, we would be in violation of WTO rules and subject to disciplinary action," he says.

Levying penalties unilaterally is referred to as "self help," and is barred from nations that submit to WTO.

This raises the question of whether there is a true goal to enact the legislation or if this is a political move to make the base happy during an election season.


ORIGINIAL POST:
Sen. Sam Brownback (R-Kan.) and Rep. Todd Tiahrt (R-Kan.) are proposing legislation that would require the Pentagon to penalize competitors for work that has been found by the World Trade Organization to have received illegal subsidies, according to industry officials.

They are unveiling the legislation tomorrow morning during a press conference on Capitol Hill.

The legislation is squarely aimed at influencing the pricing duel between EADS North America and Boeing as they compete for $35 billion worth of work building 179 Air Force refuelers. Brownback’s home state, Kansas, would benefit from a Boeing win of the contract. Brownback is a member of the influential Senate subcommittee that appropriates funding for defense programs.

His staff did not immediately respond to queries.

The request for proposals for the work heavily emphasizes low price as a discriminating factor.

Brownback’s language has not yet hit Congress, but Boeing officials are already posturing for it. They have long argued that the WTO’s recent ruling that France illegally subsidized Airbus's business, proves the company has an advantage in proposing pricing for its A330-based tanker.

Kevin Rozelsky, director of legislative affairs for Boeing, outlines the forthcoming bill in a May 11 letter. “If the WTO makes a final determination that a company benefited from a prohibited or actionable subsidy, that illegal subsidy is considered as part of the final price in a DoD acquisition,” he says in his letter. Effectively the legislation would require a penalty for a proposal put forth by a competitor found to have accepted illegal subsides. “We’re very concerned that the illegal European subsidies are going to allow Airbus to underbid Boeing significantly, and then in a fixed-price contract, they win the day. Boeing is ready to compete, but only when the competition is fair.”

"We remain deeply concerned about the ability of a heavily subsidized EADS to accept levels of financial risk that a commercial company such as Boeing cannot," A Boeing spokeswoman says. "To date the Defense Department has not taken these illegal subsidies into account, even though the U.S. government has proven in a world court that those subsidies are illegal and directly distort competition between Airbus and Boeing."

If Congress passes the measure and it becomes law, it could force the Air Force to start over with the KC-X competition, or at the very least significantly alter the calculations for pricing. Rozelsky’s letter specifies that the legislation would apply to “all major defense awards,” not just KC-X. And, it is unclear how far the requirements would go. If there were a subsidy dispute against a nation over agricultural subsidies, for example, it is unclear whether an adverse WTO ruling would have to be taken into account if that country’s industry supported a bid for a Pentagon contract.

Pentagon officials have continually said they will not take WTO findings into account in source selections.

“Boeing’s strategy for success is to take away the warfighter’s right to choose and force the largest, directed ‘earmark’ in U.S. history,” says EADS North America spokesman Guy Hicks, because the legislation is viewed as favoring Boeing’s proposal.

Tags: ar99 tanker kcx boeing eads