RichardAboulafia.com 

:: September 2009 Letter ::

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Dear Fellow Forlorn Free Trade Fans,

If, like me, you were a high school Model UN club nerd, and if you like multilateral institutions that promote harmony and good relations among countries, I’ve got great news: the WTO seems to be working. After spending five years studying the US-Europe trade dispute over Airbus subsidies, the WTO reportedly handed down a rather sensible preliminary ruling. I recently sat on an American Enterprise Institute panel on the subject (see the video at www.aei.org/video/101148) and co-panelist Marc Busch, a professor at Georgetown's School of Foreign Service, pointed out that despite fears that this case was too complicated and politically charged, the WTO did what it is designed to do: it listened to the opposing arguments and third parties, weighed the evidence, and rendered a sensible verdict. Launch aid has on at least several occasions conferred an unfair advantage to Airbus. There will be appeals, and there is a counter-complaint, but the system is working.

Before you celebrate with a tariff-free bottle of prosecco, I’ve got some less great news: the WTO works, but the rest of the world is broken. Claude Barfield, our panel’s moderator and an AEI resident scholar, summed up the problem best when he termed politicians involved with this case “yahoos.” This highly technical term applies on both sides of the Atlantic.

The trouble started well before the ruling as European politicians rushed forward with A350 XWB launch aid even as the WTO moved to rule on the subject. European Commission spokesman Luiz Guellner said, “it has always been our position that any support for the A350 has no relation to the current WTO litigation.” UK Business Secretary Lord Mandelson even more helpfully added that the aid would be provided despite the US’s “senseless tit for tat legal moves.” US Trade Representative Ron Kirk called this attitude “almost ridiculously arrogant.” “Rather like a villain from a Bond movie,” Kirk might have correctly added.

Mandelson also stated, “It's not a bail-out, and it's certainly not a subsidy. It's an investment.” If that’s true, why hasn’t the public, or anybody, been allowed to see the investment account numbers associated with Airbus launch aid? He trotted out the example of the royalties paid back on the A320 family, the most successful European jet program ever. He conveniently ignored the fact that the A320 was launched in the 1980s, and that there might have been a few other Airbus product launches since then. To help jog people’s memory, let’s recall that launch aid also enabled the A380, the worst product launch decision since New Coke. It also enabled the A340-500/600, which, to continue with beverage metaphors, did as well as Zima. You might say A350XWB launch aid is needed to rescue Airbus from the devastating impact of earlier launch aid.

As an aside, one wonders why there isn’t more debate over launch aid in Europe. Sure, US taxpayers can be impossibly irrational. Just look at the mindless hooligans in health care town hall meetings. But irrational anger isn’t much worse than blithe complacency, and the European taxpayers who put up with A380 launch aid are nothing if not blithely complacent.

Trouble is, in the US you also find angry hooligans in congress. In an incredibly unfortunate juxtaposition, the WTO ruling was handed down just before the dreaded return of the KC-X program. SecDef Gates smartly returned the third tanker recap effort from OSD to the Air Force, letting the service deal with the messy politicization that will inevitably hobble the program. “I have confidence that the KC-X selection authority is in good hands…,” said Gates, with the inspiring enthusiasm one uses to motivate a human shield. Predictably enough, myriad congressmen and senators from Washington and Kansas began lining up to shoot at the new USAF Request for Proposals, with a very simple protest: the RfP doesn’t include any language related to the WTO ruling.

What makes the European politicians’ attitude disgusting is that it disregards the authority of the WTO. What Mandelson called “senseless tit for tat legal moves” resulted in a ruling by an important world body that both factions had previously agreed to respect. Yet the WTO also forbids vigilante justice. Keeping EADS out of the tanker competition is exactly that. The only respectable path for the US is to stay the course, and rely on the WTO process. Otherwise, politicians on both sides will merely be looking into an angry mirror.

Yet Karmic justice, it turns out, functions as well as the WTO. Even as Boeing supporters prepared to use the WTO ruling to keep EADS out of the tanker competition, Boeing found itself on the other side of the same situation in Brazil. Following a visit from French President Nicholas Sarkozy, Brazil’s government announced a possible acquisition of Dassault’s Rafale, with all kinds of attendant political and trade understandings. Until this high-level government meeting, Boeing’s F/A-18E/F was in the lead for Brazil’s FX-2 fighter competition.

The Rafale may or may not be right for Brazil. It doesn’t matter. What does matter is that two heads-of-state have used their power to overrule whatever choice the Força Aérea Brasileira (FAB) might have made. That is what happens when politicians introduce factors unrelated to military effectiveness, such as trade or diplomacy, to a military competition. If a military has all its weapons chosen this way, it sacrifices effectiveness for some completely different national goal. If US politicians use the WTO as a weapon against EADS in KC-X, the USAF will be in the same miserable place as the FAB with FX-2. Sure, EADS’s two primary home countries are largely closed to US defense primes. But the US military can and should be better than theirs at de-politicizing weapons procurement.

I suspect this lesson will be ignored. EADS’s political supporters can only hope to promote a split tanker buy. Otherwise, the pro-Boeing Democratic Party politicians, with their Kansas allies, will work to ensure a Boeing win. Europe, of course, will do its part to make things worse by pushing forward with A350XWB launch aid.

Beyond this short-term outcome, there’s still hope that both sides can establish clear benchmarks and limits for their indirect subsidies—which both sides lavish on their jet producers in myriad ways—and that Europe will give up its rather obsolete and vaguely embarrassing product launch aid packages. But since there will inevitably be some kind of US retaliation for A350XWB funding, at the very least by trying to deny EADS the USAF tanker contract, there's also a chance that this disagreement will spin out of control and produce a cycle of trade retaliation. The WTO did its job. But its good work will be undermined by the very countries that had vowed to stand by its rulings.

My job might just be making me cynical. Until it does, updated Teal reports this month include the C-17, Rafale, Mirage F1, the F-2, Ching Kuo, Avanti, Super Puma, AH-1, and Tiger. Have a good month.

Yours, ‘Til The WTO Sends Out An RfP For Nuclear Weapons,
Richard Aboulafia
 

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