Sixteen lawmakers — both Democrats and Republicans — are calling on the Defense Dept. to develop a mechanism to penalize a Northrop Grumman/EADS proposal to replace KC-135 refuelers for the U.S. Air Force.

The legislators take issue with the process laid out in the Air Force’s September draft request for proposals for the KC-X competition. Northrop Grumman/EADS is planning to propose an Airbus A330-based design with Boeing likely to offer a 767 or, possibly, a 777. At issue is the Air Force’s proposal not to consider the impact of illegal government aid on the cost of the Airbus-based model. The World Trade Organization issued a preliminary ruling in September that said Airbus did benefit from unfair subsidies used to develop its commercial product line. A final ruling from the WTO is expected next year, although final rulings rarely deviate from the findings of a preliminary ruling.

Rep. Jay Inslee (D-Wash.) says there are several ways to account for the illegal subsidies in the competition. He advocates for using the countervailing duty process, which would be used by the Commerce Dept. to calculate a per unit penalty for A330s based on the actual size of the illegal subsidy. This amount, up to $5 million per unit according to Rep. Norm Dicks (D-Wash.), would then be added by the Air Force to the proposed price of the Northrop Grumman/EADS offering, Inslee says.

“With 10 percent unemployment, this is not a moment for one agency in the federal government [the U.S. Trade Representative] to prosecute and then have another agency, the U.S. Air Force, to be totally oblivious of that prosecution,” Inslee says.

Sen. Sam Brownback (R-Kan.), who hosted the press conference on Capitol Hill Nov. 18, echoed that sentiment. “Defense procurement must be consistent with our trade policies,” he says.

This, however, is a challenge. The U.S. government encouraged a massive consolidation in the defense industry in the 1990s after the end of the Cold War; Boeing is the sole remaining commercial widebody manufacturer in the United States. At the time, government officials found they would allow for competition from the only other source: Airbus. Now, however, that policy is in question because of the subsidy spat.

Rep. Todd Tiahrt (R-Kan.) says that if the defense procurement practices continue to be inconsistent with U.S. trade policy initiatives, the government should discontinue its participation in WTO cases. “If we are not going to use their judgments and we are not going to apply it then we may as well withdraw from the whole organization,” Tiahrt says. “It is this time when we have so many unemployed that we need to be fighting for American workers.”

Several other lawmakers — including Sen. Patty Murray (D-Wash.), Sen. Maria Cantwell, (D-Wash.), Sen. Christopher Bond (D-Mo.), Dicks, Rep. Eric Massa (D-N.Y.) and Rep. Rosa DeLauro (D-Conn.) — also argued that the exclusion of the WTO ruling from the KC-X source-selection method unfairly penalizes American workers, who they say would contribute to building a Boeing tanker.

Offerings from both competitors rely on work content and materials sourcing from foreign countries.

Northrop Grumman issued a statement supporting the Pentagon’s position against accounting for WTO rulings in the KC-X source selection process. “To preemptively force a trade dispute into the tanker procurement process before all outstanding complaints have been fully resolved is a violation of international agreements as well as fundamental WTO rules.” Northrop officials did not attend the press conference, saying it was a “nonevent.”

A case before the WTO to explore claims by the European Union that Boeing also received illegal subsidies through Defense Dept. research contracts hasn’t yet been ruled upon.

Boeing officials say in a statement that they appreciate support from the lawmakers. “We’ve long held the position that government subsidies to Airbus are market-distorting and a violation of WTO rules.” Boeing officials attended the press event, but did not publicly speak.

Though the Pentagon proposed a plan to issue the final RFP by the end of this month, it is widely thought it will slip into December at least to address this issue as well as questions about the source selection methodology raised by both companies and Sen. John McCain (R-Ariz.), the ranking member of the Senate Armed Services Committee.

Photo: EADS