[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
THE U.S. JET TRANSPORT INDUSTRY: GLOBAL MARKET FACTORS AFFECTING U.S.
PRODUCERS
=======================================================================
(109-20)
HEARING
BEFORE THE
SUBCOMMITTEE ON
AVIATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MAY 25, 2005
__________
Printed for the use of the
Committee on Transportation and Infrastructure
_____
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WASHINGTON : 2006
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
DON YOUNG, Alaska, Chairman
THOMAS E. PETRI, Wisconsin, Vice- JAMES L. OBERSTAR, Minnesota
Chair NICK J. RAHALL, II, West Virginia
SHERWOOD L. BOEHLERT, New York PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee ELEANOR HOLMES NORTON, District of
WAYNE T. GILCHREST, Maryland Columbia
JOHN L. MICA, Florida JERROLD NADLER, New York
PETER HOEKSTRA, Michigan CORRINE BROWN, Florida
VERNON J. EHLERS, Michigan BOB FILNER, California
SPENCER BACHUS, Alabama EDDIE BERNICE JOHNSON, Texas
STEVEN C. LaTOURETTE, Ohio GENE TAYLOR, Mississippi
SUE W. KELLY, New York JUANITA MILLENDER-McDONALD,
RICHARD H. BAKER, Louisiana California
ROBERT W. NEY, Ohio ELIJAH E. CUMMINGS, Maryland
FRANK A. LoBIONDO, New Jersey EARL BLUMENAUER, Oregon
JERRY MORAN, Kansas ELLEN O. TAUSCHER, California
GARY G. MILLER, California BILL PASCRELL, Jr., New Jersey
ROBIN HAYES, North Carolina LEONARD L. BOSWELL, Iowa
ROB SIMMONS, Connecticut TIM HOLDEN, Pennsylvania
HENRY E. BROWN, Jr., South Carolina BRIAN BAIRD, Washington
TIMOTHY V. JOHNSON, Illinois SHELLEY BERKLEY, Nevada
TODD RUSSELL PLATTS, Pennsylvania JIM MATHESON, Utah
SAM GRAVES, Missouri MICHAEL M. HONDA, California
MARK R. KENNEDY, Minnesota RICK LARSEN, Washington
BILL SHUSTER, Pennsylvania MICHAEL E. CAPUANO, Massachusetts
JOHN BOOZMAN, Arkansas ANTHONY D. WEINER, New York
JIM GERLACH, Pennsylvania JULIA CARSON, Indiana
MARIO DIAZ-BALART, Florida TIMOTHY H. BISHOP, New York
JON C. PORTER, Nevada MICHAEL H. MICHAUD, Maine
TOM OSBORNE, Nebraska LINCOLN DAVIS, Tennessee
KENNY MARCHANT, Texas BEN CHANDLER, Kentucky
MICHAEL E. SODREL, Indiana BRIAN HIGGINS, New York
CHARLES W. DENT, Pennsylvania RUSS CARNAHAN, Missouri
TED POE, Texas ALLYSON Y. SCHWARTZ, Pennsylvania
DAVID G. REICHERT, Washington JOHN T. SALAZAR, Colorado
CONNIE MACK, Florida JOHN BARROW, Georgia
JOHN R. `RANDY' KUHL, Jr., New York
LUIS G. FORTUNO, Puerto Rico
LYNN A. WESTMORELAND, Georgia
CHARLES W. BOUSTANY, Jr., Louisiana
JEAN SCHMIDT, Ohio
(ii)
SUBCOMMITTEE ON AVIATION
JOHN L. MICA, Florida, Chairman
THOMAS E. PETRI, Wisconsin JERRY F. COSTELLO, Illinois
HOWARD COBLE, North Carolina LEONARD L. BOSWELL, Iowa
JOHN J. DUNCAN, Jr., Tennessee PETER A. DeFAZIO, Oregon
VERNON J. EHLERS, Michigan ELEANOR HOLMES NORTON, District of
SPENCER BACHUS, Alabama Columbia
SUE W. KELLY, New York CORRINE BROWN, Florida
RICHARD H. BAKER, Louisiana EDDIE BERNICE JOHNSON, Texas
ROBERT W. NEY, Ohio JUANITA MILLENDER-McDONALD,
FRANK A. LoBIONDO, New Jersey California
JERRY MORAN, Kansas ELLEN O. TAUSCHER, California
ROBIN HAYES, North Carolina BILL PASCRELL, JR., New Jersey
HENRY E. BROWN, Jr., South Carolina TIM HOLDEN, Pennsylvania
TIMOTHY V. JOHNSON, Illinois SHELLEY BERKLEY, Nevada
SAM GRAVES, Missouri JIM MATHESON, Utah
MARK R. KENNEDY, Minnesota MICHAEL M. HONDA, California
JOHN BOOZMAN, Arkansas RICK LARSEN, Washington
JIM GERLACH, Pennsylvania MICHAEL E. CAPUANO, Massachusetts
MARIO DIAZ-BALART, Florida ANTHONY D. WEINER, New York
JON C. PORTER, Nevada BEN CHANDLER, Kentucky
KENNY MARCHANT, Texas RUSS CARNAHAN, Missouri
CHARLES W. DENT, Pennsylvania JOHN T. SALAZAR, Colorado
TED POE, Texas NICK J. RAHALL II, West Virginia
JOHN R. `RANDY' KUHL, Jr., New BOB FILNER, California
York, Vice-Chair JAMES L. OBERSTAR, Minnesota
LYNN A. WESTMORELAND, Georgia (Ex Officio)
DON YOUNG, Alaska
(Ex Officio)
(iii)
CONTENTS
TESTIMONY
Page
Allgeier, Ambassador Peter F., Deputy, United States Trade
Representative................................................. 9
Bogosian, Hon. Joseph H., Deputy Assistant Secretary for
Manufacturing, United States Department of Commerce............ 9
Busch, Marc L., Associate Professor, Queen'S College School of
Business, Kingston, Ontario, Canada............................ 28
Douglass, John W., President and CEO, Aerospace Industries
Association of America......................................... 28
Moss, Bryan T., President, Gulfstream Aerospace Corporation..... 28
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Costello, Hon. Jerry F., of Illinois............................. 63
Oberstar, Hon. James L., of Minnesota............................ 83
Tauscher, Hon. Ellen, of California.............................. 87
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Allgeier, Ambassador Peter F.................................... 40
Bogosian, Hon. Joseph H......................................... 46
Busch, Marc L................................................... 60
Douglass, John W................................................ 65
Moss, Bryan T................................................... 71
SUBMISSION FOR THE RECORD
Bogosian, Hon. Joseph H., Deputy Assistant Secretary for
Manufacturing, United States Department of Commerce, reponse to
a question from DeFazio........................................ 26
THE U.S. JET TRANSPORT INDUSTRY: GLOBAL MARKET FACTORS AFFECTING U.S.
PRODUCERS
----------
Wednesday, May 25, 2005
House of Representatives, Subcommittee on Aviation,
Committee on Transportation and Infrastructure,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:03 a.m., in
Room 2167, Rayburn House Office Building, Hon. John L. Mica
[chairman of the subcommittee] presiding.
Mr. Mica. I would like to call this hearing of the House
Aviation Subcommittee to order. Although we have a memorial
service going on on the steps of the Capitol and some members
will be participating in that event and will be delayed, I
would like to go ahead and start this hearing and keep it on
time. And certainly we do remember the sacrifices and service
of those in uniform as we begin this hearing today. With the
permission of the minority, we are going to proceed.
The topic of today's hearing is U.S. Jet Transport
Industry: Global Market Factors Affecting the United States
Producers. The order of business before us will be two panels
of witnesses, and we will begin today's hearing with statements
from members and then we will turn to the two panel of
witnesses that we have. I will begin with my statement and then
yield to other members.
One of the most important responsibilities of the members
of this subcommittee is to maintain fair international market
competition for United States companies and their employees who
manufacture aircraft. More than 600,000 men and women in the
United States dedicate themselves every day to advancing the
science and economics of flight by designing, producing, and
delivering sophisticated aircraft to customers around the
globe. Maintaining and even enhancing the vitality of this
industry is critical to our domestic and international
commerce. This morning, our subcommittee will focus attention
on the recent Commerce Department report entitled, and I quote,
"The United States Jet Transport Industry. Competition,
Regulation, and Global Market Factors Affecting United States
Producers."
This report was mandated in the Vision 100 legislation, our
FAA reauthorization legislation, produced by this committee,
and provides an ideal platform for the committee to hear
testimony from leading United States Government officials and
industry experts on the current state of our aerospace sector.
The report and testimony we receive today will detail the
unfair competitive practices by manufacturers in our country
that they have experienced, and also it will detail the
resulting substantial erosion of United States market share as
well as a reduction in the levels of employment in this
country.
Let me clearly state, this administration and the United
States Congress cannot and will not tolerate the unfair
subsidization of manufacturing, promoting, financing, or the
development of commercial aircraft. I believe that this
Nation's aerospace industry is in a crisis in terms of its
ability to compete on a level playing field. I am convinced
that other Members of Congress from both sides of the aisle and
from all political spectrums share this view.
We have witnessed a substantial decline in market share of
our United States manufacturers over the past years. Key
aerospace companies in the United States including Lockheed
Martin and McDonnell Douglas exited the commercial aircraft
manufacturing business in the 1980s and 1990s. Much of the
decline in the domestic industry occurred at the same time the
market share of Europe's Airbus was steeply increasing.
Understanding and addressing the current state of our U.S.
aerospace industry is not a partisan issue. Last year, more
than 240 Members of the House signed a letter to then U.S.
Trade Secretary Bob Zoellick commending him for his dedication
to ensuring that United States companies can compete on a level
playing field, and also his decision to file a trade case at
the World Trade Organization over the continued European
government subsidization of its commercial aircraft
manufacturer, Airbus. As most of the members of the
subcommittee will recall, Senator Kerry was very vocal last
year during the presidential campaign about the European's
willingness to violate WTO subsidies agreement through what has
totaled some 35 billion dollars that they have provided to
Airbus over the years.
President Bush and his U.S. trade representative, Bob
Zoellick, who just left office, and now our current U.S. trade
representative and former colleague from Ohio, Rob Portman,
along with Ambassador Allgeier, have been at the very forefront
of our administration's effort to eliminate so-called launch
aid to Airbus. Anyone who is reading newspaper editorials such
as The Wall Street Journal, The New York Times, The Long Beach
Press Telegram, The Denver Post, The Boston Herald, The
Minneapolis Star Tribune, The Chicago Tribune, just to name a
few, or watching television, realizes the concerns expressed
today are not limited just to the U.S. Congress and to this
administration. Many well-respected opinion leaders and
editorial writers, in fact, around the globe, including those
in Europe, have been particularly critical of the European
government's continued use of government funds to support
Airbus at a time when it has already achieved market share
parity with its American competitors.
In a March 2005 Financial Times editorial--these aren't my
words, this is the Financial Times British editor who wrote:
Launch aid, Airbus's unique subsidy, is an especially blatant
violation of the principles of fair competition. The EU should
let go. State support for private companies becomes
indefensible as they mature. Infant industries must grow up.
And that is the end of that quote.
Where else can any other business secure a loan at deeply
discounted rates of interest where the repayment of the loan is
based on whether or not the business is considered an economic
success? I think most people in the United States would love to
be in a position to borrow money to buy a business or a house
where they need not repay the loan if the person or company
happens to be short of cash that year or the owner loses his or
her job. Those terms have been, in fact, available to Airbus
and its customers since its creation in 1969.
Here is another quote. This isn't Mica speaking or someone
from the administration. In a German editorial, an editor
recently wrote: This assumption of corporate risk by the state
also gives Airbus the ability to pursue fantasies such as the
A380, a monster of an airplane that might not have gotten off
the ground without $3.7 billion in launch aid and another $1.7
billion in taxpayer-funded infrastructure improvements. Again,
not my quote.
Unfortunately, the aerospace manufacturers in the United
States have been forced to try to compete with companies that
receive these massive subsidies provided by the combined
treasuries of European governments. The European governments'
aerospace agenda is, in fact, very clear. It is reflected in
the comments of French Prime Minister Jospin in the year 2000.
This is what he said: We will give Airbus the means to win the
battle against Boeing. Not my quote, his quote.
Airbus's deliveries in 2003 and 2004 of more commercial
aircraft than Boeing for the first time in history suggests
that they are not far from reaching this goal.
The United States, I believe, must draw a line in the sand
and make it impossible and take every possible measure to stop
the unfair subsidization of the development, manufacture,
promotion, and financing of commercial aircraft. All commercial
aircraft. Furthermore--and when I say all commercial aircraft,
we are also looking at other subsidization by other foreign
manufacturers, and we are going to deal with that in additional
hearings and meetings.
Furthermore, those who may deal in the tactics of bribery
or government inducements violate international standards and
will be held accountable.
I have begun to take steps to make certain that they will
be held accountable.
Linkage between a foreign airlines receiving preferential
treatment for landing rights or slots from airports if the
company purchases Airbus aircraft is also under review by this
subcommittee. International intimidation as was demonstrated in
the case of a Turkish airline where its purchase of Airbus
aircraft last year was allegedly linked as a condition for
Turkey's admission to the European Union, is another practice
that bears scrutiny. An article in U.K.'s Economist of June
2003 entitled: Aircraft and Bribery: Airbus's Secret Past,
raises some very serious questions about these tactics that
have been routinely used for decades. And, again, I have taken
measures and steps to look into and further investigate and
take actions against these practices.
If the Congress and the administration do not act now to
level the playing field for United States manufacturers of
aircrafts and engines, then the 600,000 men and women who still
remain in the aerospace industry, our entire aircraft
manufacturing sector I fear will be eliminated from the
international marketplace.
We look forward to hearing from our distinguished witnesses
on these and other issues affecting United States aerospace
industry.
I am pleased now to recognize the ranking member of this
subcommittee, Mr. Costello.
Mr. Costello. Mr. Chairman, thank you. And, Mr. Chairman, I
apologize for running late. I had a group of college students
in my office, and they vote in my district so I spent a little
bit of time with them.
Mr. Mica. I should have said this, and I apologize. Just a
second.
Don't ever try to stop a hearing that I announce. I just
want to give people a warning. Do not ever try to stop a
hearing that I have announced. Thank you.
Mr. Costello. Is there a message here, Mr. Chairman, that
we are not--on our side of the aisle?
Mr. Mica. No, it is not to your side. In fact, you have
been most cooperative and I appreciate that.
Mr. Costello. Okay.
Mr. Mica. You just came in at the end here. And I just want
to make it clear that this subcommittee will not be intimidated
to push issues of national significance aside by intimidation
or by whatever means.
Mr. Costello. Mr. Chairman, thank you. Again, I apologize
for running late. I will submit my statement for the record,
and ask unanimous consent that all members submit their
statement for the record.
Mr. Mica. Without objection, so ordered.
Mr. Costello. Mr. Chairman, I thank you for calling today's
hearing to examine the competitiveness of the U.S. aircraft
manufacturing industry. We must do everything that we can in
the Congress to ensure that U.S. companies can compete on a
level playing field.
Mr. Chairman, the United States must make a strong stance
against trade barriers that hamper U.S. manufacturers from
competing on a level playing field. I look forward to hearing
from our witnesses today, in particular, our U.S. trade
ambassador, and concerning the issues of the European Union
before the World Trade Organization regarding the subsidies
provided to Airbus. I think we have to take a hard look at the
lack of adequate funding for basic aerospace research and
development, which is a significant impediment to the future of
the U.S. large civil aircraft manufacturing industry in the
United States. NASA's research budget has steadily declined
over the last decade from a high of 1.54 billion in fiscal year
1994 to the fiscal year 2006 budget request of $852 million.
To understand the effects of this lack of basic R&D funding
on the aerospace industry, I have requested that the Government
Accounting Office conduct a comprehensive assessment of U.S.
aeronautical research and development efforts and a comparison
of these efforts with those of the European Union and other
nations.
Mr. Chairman, I look forward to hearing the testimony of
our witnesses today, and, as I said, I will submit my entire
statement for the record.
Mr. Mica. I thank the gentleman. Are there other opening
statements? Mr. Westmoreland.
Mr. Westmoreland. Thank you, Mr. Chairman. I appreciate you
having this hearing, and I think everybody out here realizes
your commitment to making sure that our manufacturers are on an
equal playing field. I just want to say that I look forward to
hearing from all the witnesses, and especially Mr. Bryan Moss
from Gulfstream Aerospace in Georgia, which does a wonderful
job of manufacturing planes that people use all over this
country. And I look forward to hearing his testimony because
they are an example of what kind of product American companies
can produce. And hearing his testimony as to not only the
unfair competitiveness I guess that we do from foreign
countries being able to subsidize other things, but even the
own regulations that we do within our own country to hurt the
people that manufacture here. So, Mr. Chairman, that is all I
need to say.
Mr. Mica. Mr. Larson.
Mr. Larsen. Mr. Chairman, thank you to you and Ranking
Member Costello for holding this hearing. I want to start by
thanking the administration and the office of the U.S. Trade
Rep for the work that they have done in attempting to reach an
agreement with the European and to end the subsidies to Airbus.
This is of importance to my district located in the Puget Sound
region of Washington State, which is home to the largest Boeing
commercial facility. My district has seen first-hand what
competing with an unfairly subsidized organization can do. In
the past five years, Boeing has cut overall employment by more
than half, from 104,000 employees in 2000 to a little over
50,000 employees today. Most of these employees, both those
currently working and those laid off, live in Puget Sound. A
factor in the loss of these jobs has been Airbus's remarkable
pace of growth and continued increase of industry market share,
an increase that would be commendable, but for the fact that it
is buoyed by the unfair practice of launch aid.
Airbus's global market share of aircraft deliveries
skyrocketed from roughly 25 percent in 1992 to 52 percent in
2003. I strongly supported the USTR's decision last October to
end the US-EU 1992 agreement on aircraft and request WTO
consultations on a new agreement.
The 1992 agreement to allow 33 percent of Airbus's aircraft
development costs be funded through launch aid has run its
course. I was encouraged when the U.S. and the EU reached
agreement on negotiation terms that would end subsidies, but
let us be clear, the subsidy is exactly what launch aid is. And
through the work of the USTR, the EU has agreed to use a
definition of subsidy in the WTO subsidies agreement as a
foundation for the new agreement. Although these discussions
have stalled, again, I want to emphasize, I want to thank
former USTR Bob Zoellick for his commitment and persistence in
working to resolve this issue, and look forward to the new
USTR, our former colleague, Mr. Portman, to continue to make
this issue a top priority.
EU's continued launch aid for Airbus is unacceptable and
must end. Launch aid for Airbus consists of no or low-interest
government loans for up to a third of the cost of new Airbus
aircraft. Repayments of many of these loans are dependent upon
the sales of Airbus aircraft. If Airbus does not sell the
amount of planes it targets, it simply does not pay that
portion of the loan. Therefore, a third of the risk does not
sit with the company, but rather with the treasuries of its
government sponsors. This is an incredibly unfair advantage for
Airbus. Launch aid once perhaps served a purpose in getting
Airbus off the ground, but that time has long since passed.
Airbus is clearly a mature company that does not need risk-
free government loans to be competitive. In order for American
workers to succeed in the aerospace industry and in all
industries, they must be allowed to compete on a fair and level
playing field. When the playing field is neither fair nor
level, good paying jobs in the U.S. are lost.
I look forward to continuing to work with the
administration, the USTR, and this subcommittee to bring an end
to these unfair subsidies. Thank you, Mr. Chairman.
Mr. Mica. I thank the gentleman. Any other members seek
recognition? Mr. Ehlers.
Mr. Ehlers. Very briefly, Mr. Chairman. I just want to
thank you for calling this hearing. I think it is one of the
most important hearings we are going to have. I am tremendously
bothered by the unfair competition that we face, and I really
appreciate you calling the hearing. Thank you.
Mr. Mica. I thank the gentleman. Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman. Thank you for this
long overdue hearing.
You know, I recall a conversation I had with senior
management at Boeing back during the early Clinton era and the
negotiation of the first WTO agreement, and I suggested to them
that this was a defective agreement, that the agreement did not
deal with aviation subsidies. And they said that they didn't
want to raise those issues. They were confident in their
company, confident that they could deal with this, and also had
fear that some of their customers were European airlines that
might retaliate if they took steps to just create a truly
competitive market in dealing with Airbus.
Well, those executives are long gone and probably living in
very large homes with wonderful capital accumulation, but many
of their employees have lost their jobs and more will lose
their jobs because of the shortsightedness of both the company
at the time in terms of taking on this issue and pushing the
administration and discouraging those of us who would have done
that. Entering into an agreement as a Nation can be faulted on
President Clinton and this administration for these so-called
free trade policies that are hemorrhaging our industrial might,
sending family wage jobs overseas, allowing unfair competition,
allowing intellectual and technological blackmail by countries
such as China.
The problems do not begin and end with subsidies to Airbus;
they are much larger. And, in many ways, the Europeans are more
enlightened than we are in looking at an absolutely critical
sector that can provide very high wage jobs and provide
technologies that have both civilian and military application
and act to protect it and promote it.
Whereas we enter into this sort of bizarre laissez-faire
view of trade where we let the Chinese steal and/or blackmail
U.S. companies for their best technology. We have until very
recently allowed Airbus to receive extraordinary subsidies
without even raising a peep; and we allow company leaders to
pursue the offshore movement of technology jobs, chasing the
cheapest labor around the world.
So the problem is much bigger for the United States of
America than what we are confronting here today, but at least
we are beginning to take on one aspect of this problem with the
launch aid subsidies. And there are other subsidies that go
there. If you buy an Airbus, you are probably going to find you
might be able to get a slot at an airport in Europe that you
couldn't get if you happened to buy a Boeing and wanted to land
there. So there are many other ways in which they have been
promoting, and, again, in a way that certainly shows the United
States with its laissez-faire philosophy is losing out in the
world market here.
I am not tremendously confident in the dispute resolution
of the WTO. It does not follow the rules of jurisprudence, it
doesn't have any rules regarding conflict of interest, and it
is a very faulty process. But we should pursue this as hard as
we can. I don't know what the chairman was referring to in
terms of people trying to short-circuit this hearing, but I
think it is a timely hearing. I wish that we did have people
from Airbus here because I have questions I would like to ask
of them regarding this, and hopefully at a future date we will.
Thank you, Mr. Chairman.
Mr. Mica. I thank the gentleman. Additional opening
statements from members? Ms. Norton. And, thank you, Ms.
Norton. I understand today at 3:00 they are going to sign off,
media stations, we finally succeeded at least some plan for
reopening Reagan National. I thank you. Mr. DeFazio worked on
it, Mr. Costello, and members on both sides of the aisle, Mr.
Davis, Mr. Moran. So thank you. And you are recognized.
Ms. Norton. Well, thank you, Mr. Mica. Indeed, I was going
to begin by thanking you for this extraordinary breakthrough.
It has been 4 years, and it has not been my four years; it has
been this entire committee each and every step of the way, the
ranking member sitting at the time Mr. DeFazio was with him,
Mr. Costello, and the chairman of the committee, Mr. Young.
But, Mr. Mica, I particularly appreciate that you held a
hearing and the anchor that I think really sent the message
home that Congress, the committee took very seriously the
notion that general aviation was down in Reagan and up
everywhere else including New York right after 9/11.
So I can't say enough to thank the committee for the way in
which it has led this effort. And I think that the bill that
you marked up in April was the final message and was the reason
that we have this breakthrough now. There are some encumbrances
that are completely unjustifiable, and I think that, as time
goes on, we will be able to knock those down. The notion you
have to land a corporate jet before you land in D.C., have an
air marshal get on armed, and then proceed to National really
does once again send the message that, in 4 years, we haven't
learned to protect our own Nation's capital. That is not true.
And I ask the committee to look further at the encumbrances
so that we can get going. There are some things perhaps we
ought to be doing here that we don't do other places, but some
of these encumbrances simply cannot be justified.
I did want to say a word, Mr. Chairman, about this hearing,
because I think this is a very important hearing. You have
recently had hearings on the state of the airlines themselves
and hearings that were very important as we look at the future
of the aviation industry and our country.
This is very troubling. This issue is very troubling. This
is an industry, one of our most highly skilled industries. It
has been--it is being miniaturized before our very eyes, lost
half its employees in the last 15 years, yet it has kept a
positive balance, trade balance when at odds with what the
country at large has done. We can't afford to lose this
industry, especially for the reasons it appears that it is
experiencing some trouble, and that is government involvement
and with the competition, launch aid and other such activities.
We have got to find a way not to be the only country who
follows trade rules and the rules of ordinary commerce. And
when others do not follow them, we have simply got to step up
and take the appropriate action before we lose yet another
major industry in this country. So I am particularly grateful
for today's hearings, Mr. Chairman.
Mr. Mica. I thank the gentlelady.
Mr. Poe.
Mr. Poe. Thank you, Mr. Chairman. Having lived in Texas
where we have numerous Boeing employees, this hearing is very
important. I appreciate you, Mr. Chairman, having this hearing.
We know what the problem is: The European Union is determined
to create an advantage for Airbus in spite of agreements, in
spite of the rule of law by any means necessary. In any event,
Boeing is one company that still competes well, but I look
forward to some answers to this problem now that we know what
the issue is. I look forward to the answers coming from both of
our panels today. So thank you, Mr. Chairman.
Mr. Mica. Mr. Pascrell.
Mr. Pascrell. Mr. Chairman and Ranking Member Costello, I
have been long pressing for the Federal Government to develop a
national manufacturing policy in the legacy of Alexander
Hamilton. Under our Nation's trade policy, we have seen the
steep decline in our manufacturing base in general. For the
past 2 centuries, our Nation has grown its economy based upon
production, the production of our grandparents and our parents
for the most part. If we believe that service jobs alone will
sustain our position in the world, I think we are kidding
ourselves. We are also delusional if we do not see the
manufacturing capacity as essential to the national security of
this country. And I believe the government is an accessory to
the fact of that decline.
Trade deficits are growing as far as the eye can see. We
are entering into free trade pacts without any coherent
strategy. These agreements are more like investment deals where
we are encouraging firms to move jobs offshore. It is no secret
that in particular, domestic airline manufacturing industry is
in dire straits. Tens of thousands of Boeing employees have
lost their jobs in the last year.
The administration needs to play hardball with the European
Union to bring Boeing and its workforce the level playing field
that it deserves. With so many American jobs on the line, if
the World Trade Organization cannot solve this dispute
properly, I think we should seriously think of putting that
organization out of its misery.
Along with international trade I think we must take care of
business at home and plan for the future. We must increase
funding for research and development, and educational
opportunities for our students to prepare them for the
necessary engineering and problem solving skills. Too many
firms are packing up and expanding their R&D operations
overseas. In our budget, these are certainly not the priorities
we have seen. I am hopeful that hearings such as this one will
convince us to reexamine how we are spending our resources.
And I know this is not a simple matter. I know that Airbus,
up to 40 percent of the value of the Airbus airplane can
original in the United States. I am very aware of that. I am
also aware that Airbus spends in excess of $5 billion in the
United States. But the fact of the matter is I think that what
I have said previous still holds. And I would like to hear from
the two folks who are in front of us a coherent approach and
not simply a focused approach to forget about what the umbrella
problem is. Thank you, Mr. Chairman.
Mr. Mica. I thank the gentleman. Any other additional
opening statements? If there are no additional statements, we
will turn to our first panel. And we have two witnesses. The
witnesses are Ambassador Peter F. Allgeier, Deputy United
States Trade Representative, and the Honorable Joseph H.
Bogosian, Deputy Assistant Secretary for Manufacturing of the
United States Department of Commerce.
TESTIMONY OF AMBASSADOR PETER F. ALLGEIER, DEPUTY, UNITED
STATES TRADE REPRESENTATIVE; AND HON. JOSEPH H. BOGOSIAN,
DEPUTY ASSISTANT SECRETARY FOR MANUFACTURING, UNITED STATES
DEPARTMENT OF COMMERCE
Mr. Mica. I would like to welcome both of you, and
recognize Ambassador Allgeier first.
Mr. Allgeier. Thank you very much, Mr. Chairman. I would
like to thank you and Ranking Member Costello and the other
members of this subcommittee for providing the opportunity
today to address this very important issue of the U.S. civil
aircraft industry and the factors and policies affecting our
producers.
Today I wish to focus on a particular global factor
affecting our producers, and that of course is the subsidies
for the development and production of large civil aircraft, and
on the administration's ongoing efforts to end the subsidies to
the European aircraft manufacture Airbus.
Today I will discuss some historical background on the
subsidy issue, but I would like to focus on our efforts working
with our industry to end EU aircraft subsidies.
As we all know, Airbus was established in 1970 as a
European consortium of French and German and then later Spanish
and U.K. companies. Ultimately, it became a single integrated
company, 20 percent owned by BAE Systems of the U.K. And 80
percent owned by European Aeronautic Defense and Space Company,
EADS. And EADS itself is 15 percent owned by the French state,
5 percent owned by Spain.
Over its 35-year history, Airbus has benefited from massive
amounts of subsidies from EU member states and from the EU
itself, and these subsidies have enabled the company to create
a full product line of aircraft and to gain more than a 50
percent share of the global large civil aircraft market.
Every major Airbus aircraft model was financed with
government subsidies taking the form of launch aid, that is
financing with no or low rates of interest, and repayment tied
to and entirely dependent on the sales of financed aircraft. In
addition, EU governments have forgiven Airbus debt, have
provided equity infusions, have provided dedicated
infrastructure support, and have provided substantial amounts
of research and development funds benefiting civil aircraft
projects.
Since 1985 the United States has been involved in several
rounds of negotiations with the Airbus partner governments and
with the European commission itself, with the objective of
achieving greater discipline over the subsidies provided to
Airbus. In July of 1992, the two sides negotiated a bilateral
agreement limiting government support for large civil aircraft
programs.
That agreement included a prohibition on future production
support and a limitation on the share of government support for
development of new aircraft models limiting it to 33 percent of
the project's total development costs. Three years--so at that
point there were no multilateral rules that applied here. In 3
years later, however, the WTO subsidies agreement entered into
force, and that agreement applies in full to subsidies of large
civil aircraft. If a member provides a subsidy that is
inconsistent with the agreement's terms, it is subject to
challenge at the WTO.
Now, despite these obligations, the EU has continued to
subsidize Airbus. The $3.7 billion that you mentioned, Mr.
Chairman, in launch aid that they have--the European
governments have committed for the A380, the super jumbo, was
the largest amount of funds committed for a single project.
And, as you pointed out, the EU provided further loans and
infrastructure support that pushed the total amount of
subsidies to the A380 to date to approximately $6.5 billion.
Now we see that Airbus is on the verge of launching another new
aircraft, the A350, and it has requested to date $1.7 billion
in risk-free launch aid for that aircraft as well.
Mr. Chairman, our current effort to end the subsidization
of Airbus began early last year when it became apparent that EU
member states were considering subsidies for this newest plane,
the A350. President Bush instructed the U.S. Trade
Representative to pursue all options to end the subsidization
of Airbus, including the filing of a WTO case if that were
necessary. The U.S. industry has fully supported this approach.
Unfortunately, the EU was not willing to agree to the goal
of ending new subsidies. Therefore, on October 6th of last year
we initiated the first stage of dispute settlement proceedings
at the WTO. We also exercised our right to terminate that 1992
agreement.
On January 11th, when we were on the verge of moving to the
next stage of our WTO challenge, we reached agreement with the
incoming trade commissioner of the European Union, Peter
Mandelson, on a framework for negotiating an end to subsidies.
We agreed with the EU at that time on a 90-day time frame for
the negotiations, and the agreement included a common goal
explicitly stated in writing of ending subsidies as defined by
the WTO subsidies agreement.
In March, however, EU officials backed away from the agreed
objective of ending the subsidies because certain EU member
states want to continue providing launch aid and subsidies to
Airbus, in particular for the Airbus A350. Now, the EU argues
that it needs to continue providing launch aid to offset
subsidies that Boeing allegedly receives from NASA and the
Department of Defense. There is no basis for the EU's claim. We
do not agree that NASA and defense contracts provide subsidies
to Boeing's production and development of large civil aircraft.
And, in any event, Airbus and its parents, EADS and BAE
systems, have space and defense businesses that rival that of
Boeing, but only Airbus receives launch aid. There is no
similar type of financing available in the United States.
Launch aid, as a number of the members have already pointed
out, is a particularly distortive type of subsidy because it
shifts enormous up front expense and commercial risk of
developing new aircraft from Airbus to European taxpayers. If
Airbus guesses wrong about the project of a particular
aircraft, it does not need to repay the money. Moreover,
because repayment is tied to sales, Airbus receives a
substantial grace period before it needs to begin repayment.
For example, Airbus has not even begun repaying the $3.7
billion that it received 5 years ago for the A380.
Mr. Chairman, the administration continues to believe that
a negotiated outcome that ends launch aid and other WTO
incompatible subsidies would be the preferred route for
resolving this matter. But let me be clear. If we conclude that
a negotiated solution to end the subsidies is not possible in
the near term, we will return promptly to the WTO. We are
working very closely with the industry on this strategy. The
administration is committed to ending the subsidization of
Airbus and to establish a level playing field for trade in
large civil aircraft. It is up to the Europeans to decide if
they are prepared to withhold all launch aid while negotiating
an agreement, or if they would rather take their chances in a
WTO dispute proceeding.
We look forward to working with you, Mr. Chairman, the
members of this subcommittee, other interested members of
Congress, and of course the U.S. industry to stop the unfair
subsidization of Airbus. Thank you very much.
Mr. Mica. Thank you. And we will withhold questions until
we have heard from our second witness, who is the deputy
assistant secretary for manufacturing, Joseph Bogosian.
Welcome. And you are recognized, sir.
Mr. Bogosian. Good morning, Mr. Chairman, Ranking Member,
and distinguished members of the subcommittee. On behalf of the
U.S. Department of Commerce, thank you for the opportunity to
share our views today. I would like to submit my written
testimony and our report for the record, and make a brief
opening statement.
Working in the International Trade Administration, I
oversee our 12 manufacturing industry teams, including
aerospace. Our mission is to advance U.S. commercial economic
competitiveness. Namely, we identify policy challenges, we
analyze data to develop policy positions, and we advocate those
positions domestically and internationally.
Mr. Chairman, as you know, pursuant to Congress's request,
the Commerce Department in collaboration with other agencies
recently submitted the U.S. jet transport industry report. It
examines the industry, reviews relevant international trade
agreements and provisions and U.S. and European government
policies, and identifies potential obstacles confronting U.S.
manufacturers in an increasingly global market.
The U.S. commercial aerospace companies involved in the
production of large civil aircraft have lost significant global
market share over the last 25 years primarily to their European
counterparts. We went from three U.S. manufacturers of large
civil aircraft in the 1970s to only Boeing today. A subsidized
35-year-old Airbus delivers more new commercial aircraft than
Boeing and has received more orders for new aircraft five out
of the last 6 years. Canadian and Brazilian regional jets
increasingly are being used by airlines on routes that once
were served by Boeing and Airbus aircraft. The two U.S.
manufacturers of large civil aircraft engines have experienced
similar, though less drastic losses of global market share to
their European competitors. U.S. parts and components companies
face more difficulty maintaining their market share in an
increasingly global industry. They will increasingly look to
non-U.S. manufacturers for a growing percentage of their
business.
Aerospace manufacturers and countries such as Russia,
Japan, South Korea, and China will continue to build their
expertise and market share. Passenger and cargo airlines also
have undergone a significant transformation since deregulation
in 1978. Today, legacy airlines are struggling to stay solvent,
and low cost carriers are a formidable presence.
The evolving market has led to new demands for aircraft
models with new capabilities and changes in the way aircraft
are purchased and operated. These market-based factors have
brought changes to the U.S. aerospace manufacturing industry.
I now turn to the nonmarket factors such as government
policies, funding, and regulations that have also brought
significant change.
In our report, we review 12 policy categories; I will
discuss a few of those today. Trade agreements have done much
to liberalize and level the international playing field for the
aerospace industry. Many of these agreements need to be updated
to keep pace with the evolving industry. Foreign government
financial support to aerospace manufacturers is a very critical
obstacle to fair and open global trade. The report lays out
this issue in detail, and Ambassador Allgeier described the
problem and how the U.S. government is vigilantly addressing
this concern.
Nontariff barriers such as standards and regulations will
have an increasingly significant impact on U.S. aerospace
exports. Foreign government standards and regulations should
not have a discriminatory commercial impact against U.S.
products like they have in the past. Regulations should have a
scientific basis and take commercial realities into
consideration. This is particularly important right now as
Europe develops environmental standards regarding emissions and
noise and as manufacturers seek safety certification for their
new and innovative aircraft.
The air transportation system's ability to grow is limited
by government regulations and old technology. Increasing
liberalization of air services and improvements to air
transportation systems will open new markets for air passengers
and cargo and support aircraft sales.
The United States has led the world in fighting bribery.
Unfortunately, problems still remain. We encourage foreign
governments to strengthen and fully enforce these laws so U.S.
companies can compete fairly.
Existing government aircraft finance rules and regulations
have helped neutralize the role of export financing. These
provisions, however, need to be updated to reflect current
commercial financing practices and the emergence of the two new
major jet transport manufacturers.
At the conclusion of the report, we outline our ongoing
current efforts to address the challenges we have identified.
Here are some of those efforts:
We are working to update multiple aerospace-related trade
agreements and policies so that they will accurately reflect
the state of global aerospace and airline industries. We are
seeking recourse through the WTO and through bilateral
negotiations to bring an end to subsidies for development of
new large civil aircraft. We are working with our foreign
counterparts through the OECD to update international aircraft
finance and bribery provisions. We are working with other
countries to develop new global standards and recommended
practices, and with other agencies here at home through the
JPDO to transform the air transportation system.
We are conducting negotiations aimed at increasing
liberalization of international air services that will further
support expansion of the global aviation system.
Overall, we remain vigilant in addressing all these
nonmarket factors impacting U.S. industries' competitiveness.
Again, Mr. Chairman, Mr. Ranking Member, thank you for this
opportunity to discuss with you our report and findings. There
are many things that we can do together in support of our
shared constituency. I look forward to today's discussion and,
probably more importantly, to working with you beyond today's
hearing. Thank you.
Mr. Mica. I thank both of our witnesses. And we will start
with a couple of questions.
One of the problems that we seem to have is getting hard
financial information on the extent of some of the
subsidization. Airbus and its parent company do a lot of
business, or attempt to do business or are attempting to do
additional business in the United States. Ambassador, are our
financial reporting requirements adequate and transparent
enough that, under current law, we have the information we need
to go after Airbus and its parent company in some of these
trade disputes?
Mr. Allgeier. Mr. Chairman, just to let you know and the
other members of the subcommittee know that we are fully
prepared to move forward promptly in the WTO. Our legal team
has been working for many months to pull together the material
that we need to make a very strong case in the WTO.
Mr. Mica. Do you need any additional legislative authority
to probe finances which are sort of guised in international
corporations, but may not be transparent?
Mr. Allgeier. I don't think that we need additional legal
authority at this point. It is not hard to see $15 billion
subsidy.
Mr. Mica. All right. There was a previous case and ruling
similar in nature, I believe it was a Canadian case, that set
some precedent in the WTO in 1994, was it? Does this provide us
with a ruling that would also indicate we would have favorable
results if we pursue this with WTO?
Mr. Allgeier. The case that you are referring to was one
involving Brazil and Canada. Their Embraer and Bombardier
programs. It did help to clarify some of the rules with respect
to subsidization focusing primarily on export subsidies. What
we are looking at here is a somewhat different kind of subsidy,
but we certainly, as I said, feel confident that we have a very
strong case.
Mr. Mica. Is some of that aid in the form of what they call
royalty-based loans? How does this differ, and can you explain
again how you feel this is unfair subsidization?
Mr. Allgeier. Well, yes. Very clearly, the kind of--well,
there are various forms of support that Europe provides. The
most egregious one, in our view, is this launch aid, which is
money that is provided to Airbus. And, as we have said, Airbus
does not have to pay that back at all unless they are
successful in marketing that particular model. And so that is
the particular kind of launch aid that is, as I said, most
egregious. But there also are other forms of support that
Airbus receives that we believe fall within that definition of
the WTO agreement on subsidies.
Mr. Mica. What is the WTO standard for determining whether
such government assistance violates international trading
disputes?
Mr. Allgeier. There are a number of elements to that. First
of all, whether there is a financial contribution that provides
a benefit to the company receiving it. And that financial
contribution can take a number of forms. It can be a direct
transfer of funds, grants, loans whatever. It could be
foregoing government revenues or taxes. It could be the
provision of government goods and services that are not at a
market rate. The subsidy, the transfer must be specific to an
enterprise or an industry--fits the bill here--and, if it is
something other than an export subsidy or a domestic content
requirement, it must have an adverse effect. And obviously, if
you look at the market share that Airbus has been gaining year
after year, there is clearly an adverse effect upon U.S.
industry.
So, for all of these different elements, we think that the
support that is provided to Airbus fits within that definition
clearly, and therefore should be ended and the subsidy should
be repaid.
Mr. Mica. Thank you.
Mr. Bogosian, over the past years aviation industry
manufacturing has been one of the lead export areas of the
United States. We are now running trade deficits excess of $700
billion a year. In the past, one of our success areas in export
has been commercial aircraft products from our aviation
industry. What is the recent record as far as the effect on our
trade deficit? Do you have that information?
Mr. Bogosian. What we show is that U.S. aerospace still
leads in terms of trade surplus as an overall industry sector.
And given--
Mr. Mica. Hasn't that been on a decline at least the last 5
or 6 years?
Mr. Bogosian. It certainly has. And that is why it is time
to stop the bleeding, and we have to take action on very
specific aspects of this.
Mr. Mica. The last question will be, Ambassador, you said
the President and the administration are going to explore all
options. And I think Mr. Pascrell said he wants to hear, and I
want to hear, what other steps that we have. We have the WTO.
We have Congress now getting involved. We will probably be
taking some steps to address this. I asked if you needed
additional legal authority in the financial area or any other
realm to stop the bleeding, so to speak. What does the
Department of Commerce, what does our USTR propose? Are there
any other options or anything that we can do to assist?
Ambassador, and then we will get Mr. Bogosian.
Mr. Allgeier. I think the most important thing is what you
are providing here today and what you and the other members
have provided, which is, one, shedding light on these practices
by the Europeans so that everybody here understands the
magnitude and the trade distorting nature of them. And then,
secondly, to support us as we move forward either in an
effective negotiation or in effective litigation.
Mr. Mica. Mr. Bogosian.
Mr. Bogosian. As Ambassador Allgeier mentioned earlier, the
support in this case in terms of Boeing-Airbus issue comes in
many different forms. Launch aid is just one of them. There is
also government assumption and forgiveness of debt. There is
also direct infusions of capital, government-funded
manufacturing facilities--all this support basically goes from
the European government treasuries to the benefit of private
corporations. In 1998 and 1994, for example, the German
government gave 2.33 billion deutschmarks to assume privately
held debt. So even beyond the royalty based loans that Airbus
was operating under, this is the private debt that Airbus had
taken on and the German government gave 2.33 billion
deutschmarks in 1988 and 1994 to assume that privately-held
debt.
In 1997 and 1998, the German government forgave 7.34
billion deutschmarks of the royalty based loans or the
government debt that had been given out. So, not only do they
benefit from the royalty-based loans and the market distorting
factors and the assumption of risk by the government for the
launch of a private product, they also benefit when those loans
are forgiven.
Infusions of capital, again, are things that are pretty
much unheard of and just unfair for a 35-year-old mature
company. The French government provided 2 billion francs as an
equity infusion to Aeroespatiale which at the time was an
Airbus consortium partner which is now in one corporate entity.
That was in 1987. And in 1994, another 2 billion francs, again,
as just a direct check and equity infusion from the government
into a private company's coffers.
The WTO case, I believe, addresses these types of things,
goes after these types of things. As to your question, one of
the other matters that we are addressing is bribery, for
example. I know some of the members talked about that in their
opening remarks. The Commerce Department recently put out a
study on the bribery issue. I can share that with the committee
after today's hearings. But bribery was a very serious issue.
You had companies basically writing off their bribes in their
tax returns in Europe. U.S. companies were operating under the
Foreign Corrupt Practices Act. Our guys can go to jail; their
guys can take a tax write-off. Well, we finally got the bribery
convention within the OECD, and so now what we are working on
is thay it's all well and good that we have the bribery
convention, but we need to see actual laws put into place that
are as tough as the Foreign Corrupt Practices Act. And then we
need to see the enforcement of those laws to really shake those
people in their boots and do something about that.
So there are a number of fronts that we are working on on
this overall trade issue, on the trade balance issue, and
bribery is yet another one. And there are so many more that we
can talk about.
Mr. Mica. Thank you. And we may be looking at some measures
where people guilty of that kind of activity are prohibited
from conducting their business in the U.S. or with the U.S. or
any of its entities. As I said in my opening remarks, we will
follow up on that aspect.
Mr. Costello. Thank you.
Mr. Costello. Mr. Chairman, thank you.
Mr. Ambassador, we have heard about these subsidies for a
number of years. We have just heard testimony this morning;
and, in written testimony, there is documentation about
subsidies going on for a number of years.
I am wondering, one,finally in 2004, we filed a complaint
with the WTO. Why did it take so long for our government to act
in filing this complaint?
Mr. Allgeier. Yes, in this dispute, as in others, we strive
to work very, very closely with the affected U.S. interest, the
affected U.S. industry. For several years, the industry's
position was that we should seek a reduction of the support,
but there was concern at the other ramifications if we were to
take a WTO case, other ramifications in terms of the effect on
their sales in some of these European markets.
Basically what happened is, as time went by and they saw
their market share eroding, they determined that the balance of
interest was in a more aggressive approach with respect to the
WTO. We have agreed with them on that, and that is why we
terminated the '92 agreement and initiated these WTO
proceedings.
Mr. Costello. In your testimony, you indicate that the
administration would prefer to negotiate a settlement; and I
wonder if you might tell us, for the record, what the prospects
of a settlement are at this point?
Mr. Allgeier. First of all, let me be clear that our
preference is to negotiate a certain kind of settlement, not
just any settlement. The certain kind of settlement is one we
have been extremely clear on, and that is to eliminate the
subsidies, not simply to put a cap on them.
Frankly, as we read the papers in Europe--and we follow
this matter closely--I must say that it appears to me that at
least some of the European member states remain convinced that
they need to provide launch aid to Airbus; and, unless that
attitude changes, the prospects for a negotiated settlement are
not high.
Mr. Costello. There are some who would argue that Boeing
receives subsidies. You touched on the issue of those who
believe that, because of the research and development done by
NASA, that Boeing has benefited, and they see that as a subsidy
to Boeing.
There are others who would say that Boeing receives
direct--or indirect subsidies through State and local tax
incentives. I wonder if you might want to elaborate a little
bit on the issue of does Boeing receive a subsidy because of
the R&D from NASA and then the other tax incentives by State
and local government.
Mr. Allgeier. We have no doubt that if the United States
proceeds with a case in the WTO against Europe, that Europe
will file a counter case; and they will allege in that case
that there are subsidies in violation of the WTO agreement
received by Boeing. We certainly are fully prepared to defend
U.S. interests if such a case is filed by the Europeans.
Mr. Costello. Well, you specifically mentioned a minute ago
in your testimony that it is your opinion--it is our
government's opinion that Boeing is not receiving a subsidy, it
would not be considered a subsidy, the R&D through NASA; and I
wonder if you want to clarify that.
Mr. Allgeier. As I mentioned earlier, in sketching the
elements of the WTO agreement on subsidies, there are a number
of factors that have to be taken into account. One of them is
the specificity of any sort of support; that is, specificity
that is going to a particular company for the production and
development of large civil aircraft. The kinds of programs
certainly that I understand that NASA provides are more general
programs in the area of space exploration and so forth.
So we feel that those are a different kind of engagement
with industry than the launch aid, which is so clearly aimed at
the production and development--or the development of large
civil aircraft.
Mr. Costello. I wonder, finally--a final question, if you
would walk us through how the dispute settlement mechanism is
with the WTO, how a panel is requested and how the process
works, as well as the time frame of litigating a case with the
WTO?
Mr. Allgeier. Yes. I mean, the first step in a dispute
settlement process is to ask for consultations with the other
party. That is what we did in October. We held those
consultations in November. There is then a waiting period
before one can ask for a panel. That waiting period has already
expired. So that is the stage in the proceeding where we are
right now.
We were ready earlier this year--at the end of last year, I
should say--to go and request a panel when the new European
trade commissioner came to us and said, I would like to see if
we can solve this through negotiations.
Now, if we go further in this process, we will ask for a
panel to be assembled. A panel is then assembled from trade
experts; and we must agree to the members of that panel, as
must the European Union. So that is the process for getting a
balanced or an unbiased panel.
Once the panel is formed, then each side comes in with its
brief, written submissions and oral presentations, and there is
a back and forth, a number of rounds. Then, ultimately, the
panel makes what is called an interim finding, which is shared
confidentially with the parties. We get a chance to respond,
and then they come out with their final determination.
At that point, either party can ask for an appellate body
to review that panel. The appellate body reviews it. There is a
very compressed time frame for the appellate body to do that,
and then the appellate body comes out with its ruling.
Under the WTO, as opposed to its predecessor, the GATT, the
parties are required to comply with that finding. It used to be
that if a party objected it didn't have to comply. Well, that
wasn't a very effective dispute settlement process. So this is
the process that we have now.
Obviously, the time frame varies depending on the
complexity of the issue. This is a complicated issue. Normally,
one would expect there to be an 18-month, 2-year period to go
through this process, which is one of the reasons that we think
that we should look to see whether we can deal with this more
efficiently or more quickly through negotiations. But I want to
emphasize we are not going to sit around forever assessing
whether to move forward with litigation.
Mr. Costello. If you have to go forward with requesting a
panel, is there time--are there the deadlines for the panel?
Once the panel is assembled, both sides make their case, is
there a deadline for the panel to make a finding or a
recommendation?
Mr. Allgeier. There are general time frames that apply to
the dispute settlement process. Then each panel has to work
within those time frames to set the precise timing for how much
time they are going to allow for people to prepare their briefs
and how much time for rebuttal and then how much time they need
to reflect on that and come to their judgments.
Mr. Costello. So what are we blankly looking at here, if it
goes to a panel? From the time that the panel receives and
concludes the arguments, receives the testimony, when are we
likely to find a ruling or determine a ruling?
Mr. Allgeier. If we were to walk into the WTO today and say
we want to restart the process and we want a panel formed, I
think realistically we are looking at 18 months to 2 years.
Mr. Costello. Thank you, Mr. Chairman.
Mr. Mica. I thank the gentleman.
Mr. Duncan.
Mr. Duncan. Thank you, Mr. Chairman; and thank you for
calling this very important hearing.
Mr. Ambassador, everyone knows that the House Ways and
Means Committee is the most pro free trade committee in the
entire Congress. In fact, no one is placed on that committee
unless they are strongly in favor of free trade. Yet in the
Congressional Quarterly today's publication has a report saying
that, just yesterday, in discussion on a resolution concerning
the World Trade Organization, that almost all the panel members
had very critical comments about the WTO, including Chairman
Thomas, who apparently was quoted as saying at one point,quote,
because we are big, they think we can take any kind of
pounding. And he said the US has been held to unreasonable
standards of proof.
We all know that the WTO has ruled against the United
States in almost every case, big or small; and I can tell you
that there is tremendous concern in this Congress about this
unbelievable trade deficit, a trade deficit so big that if any
of us had predicted it would be this size 10 years ago, or even
5 years ago, people would have felt we were crazy. And there is
tremendous concern all across this country about jobs.
What I am getting at, everyone--all of--everyone in this
country and even companies all across the world who favor free
trade had better start doing whatever they can to encourage
more fairness from the WTO toward the United States or there is
going to be a tremendous backlash. It is already starting to
develop; and even if Members of Congress don't want to, the
American people will start demanding that we take actions.
So what I am saying is, your legal team had better start
preparing a little better case or a stronger case than what has
been presented to the WTO in the past, or something a little
different, I guess, should be done.
You talked in your testimony about what you call the
massive subsidies over the 35-year history. How much have those
subsidies totaled? Have you been able to determine that?
Then, also, you mentioned that EU governments have forgiven
Airbus--had forgiven a lot of Airbus's debt. How much debt has
been forgiven?
Can you give us a rough idea on those, the total of those
subsidies and that debt forgiveness?
Mr. Allgeier. Thank you. Thank you, Mr. Duncan.
With respect to your first comments, indeed, Chairman
Thomas yesterday held a markup of a resolution, a joint
resolution, which the Congress examines every 5 years, as to
whether the United States should continue to participate in the
WTO. There had been a subcommittee hearing, trade subcommittee
hearing a week or so before on this subject; and, indeed, there
was quite a bit of criticism by the subcommittee and some
members of the committee with the dispute settlement process at
the WTO.
Now, that said, the outcome of yesterday's markup was a
unanimous vote to report that resolution out unfavorably, i.e.,
the resolution that we shouldn't participate.
Mr. Duncan. Everybody knows that we are not going to
withdraw at this point.
Mr. Allgeier. Right. But if I could just get to the more
specific point of the disputes and the track record there. Over
the 10 years that we have been in the WTO, the balance between
the cases we have won on the core issues and the cases we have
lost on the core issues is 54 percent win. But that excludes
some three dozen cases which we--either we initiated or someone
else initiated against us, where we negotiated a satisfactory
settlement to the United States during the course of the
litigation. So the result of that is that, in 71 percent of the
cases, we have either won on the core issues or we have
negotiated a satisfactory settlement.
I think what is even more relevant for this case here where
we would be initiating a case is our track record of wins plus
satisfactory settlements in cases that the U.S. has initiated
against someone else is over 90 percent.
Mr. Duncan. If that is the case, why do you think there was
so much criticism from the Ways and Means Committee yesterday
and statements about the fact that WTO has been ruling against
us so much--if that is true?
Mr. Allgeier. Well, because, I mean, there is concern with
any time that we lose a case. In a number of these cases,
members were particularly concerned because they had to do with
some of our trade remedy laws. Although the kinds of losses we
have had there have certainly not prevented us from very
aggressively using or very--conscientiously using our trade
remedy laws.
With respect to your question about the magnitude of the
subsidies, if you look just at the launch aid itself, that
particular form of subsidy that I mentioned, the subsidies to
date by our calculation are over $15 billion; and if you add in
the other forms of subsidization, it is certainly significantly
higher than that.
With respect to your specific question on debt forgiveness,
that I would have to get back to you, because I don't have that
on my fingertips at this moment. But I will be happy to provide
you with our best estimate of that.
Mr. Duncan. I see my red light is on, but let me ask you
one last question.
You said the most egregious example was this $3.7 billion
launch aid. Is that more than the 33 percent of the total
development costs that was negotiated in that agreement in July
of 1992?
Mr. Allgeier. The European Union claims that that $3.7
billion is within that 33 percent limit. That is just for that
one model of the A380.
Mr. Duncan. All right. Thank you.
Mr. Mica. Mr. Larsen?
Mr. Larsen. Thank you, Mr. Chairman.
Ambassador Allgeier, I have some questions for you, but you
have answered largely most of them from questions from other
folks. So I am going to give you a little rest if you don't
mind, and I will ask Mr. Bogosian some questions.
With regards to the report the Commerce Department did, and
I certainly want to commend the Department for not only doing
their report but, obviously, for the conclusions and the
research that went into it, and I believe the report is,
indeed, part of the record. But I wanted you, if you could, to
answer some questions for me and for the committee on the
record about some fundamental conclusions on certain topic
areas, if you could. Are you prepared to do that for us.
Okay. On military R&D, page 71, there is a discussion about
military R&D applied to Boeing and Airbus and general aerospace
manufacturing. Can you provide the committee verbally what the
fundamental conclusion about military R&D is relative to this
issue of subsidy?
Mr. Bogosian. Thank you, Mr. Larsen.
This goes to the prior question by I believe Ranking Member
Costello in terms of the range of supports and Airbus's
allegations that Boeing, in turn, receives certain types of
supports, one of them being military R&D.
One of the things to keep in mind there is that, first of
all, not all military R&D dollars go straight to the
development of a Boeing product, which appears to be the
allegation here from the other side.
The other thing to keep in mind is that even if you give
them their entire argument, just hand it to them on a silver
platter, what they are saying is that the military and space
side of the Boeing company--that any R&D dollars that they
receive somehow benefits the commercial side of Boeing. Well,
then, you know, what is fair for one side must be fair for the
other.
You look at Airbus; and Airbus's military side is its
parents, EADS and BAE Systems. And if you look at EADS and BAE
Systems just in 2003--we don't have the 2004 figures yet--in
2003, they received in military contracts $2.3 billion more
than Boeing did.
So, by their own argument, they received $2.3 billion more
indirect support--and I hate that term because it is just a
smokescreen--so they receive more support, even if you give
them their argument. But the bottom line is you can't give them
their argument, because the argument has a fallacy right from
the beginning. Not all military R&D dollars go to the
development of the 737 or the 787 or whatever new model that
Boeing puts out.
Mr. Larsen. In fact, on page 73 of your report, it is
noted, most defense R&D funding is mission-specific and
earmarked for a higher level of development, testing and
evaluation.
Mr. Bogosian. One other thing to keep in mind is that
Boeing is just one of the many U.S. Military contractors. EADS
and BAE Systems are the top two largest European defense
contractors. So you have got the two biggest, the two
heavyweights making more money than just one of the many
defense contractors in the U.S.
Mr. Larsen. Moving on in that report, can you provide the
committee verbally the fundamental conclusion with regards to
civil R&D?
Mr. Bogosian. Sure. There, again, it is yet another
smokescreen. The problem is that you can't just look at NASA's
and FAA's aeronautical R&D budgets and say, well, there you go,
that somehow a truck is pulling up to NASA and FAA and then
delivering the money from NASA and FAA to Boeing, and Boeing is
using that money to build a new aircraft. That is just simply
not the case. It is a ludicrous argument.
First of all, not all of NASA's and FAA's aeronautical R&D
has a direct correlation to the development of a commercial
product. So one thing you have got to do is take off the top
anything that is an R&D expenditure that does not have a
commercial application. You are left with a smaller sum.
From that, what you look at is which of those programs did
Boeing participate in? And, which of those programs had a
commercial benefit? And of those--and this is key--there is a
very crucial difference between how we give out R&Dmonies and
how the Europeans do.
A lot of our R&D dollars are for the public good, which
means that once you are at the end of the R&D process, you give
out the results of that research for the public good. They are
all shared. So Airbus gets it, Boeing gets it, and whoever else
wants it gets it, and has access to it.
In Europe, however, those types of R&D dollars are very
specific. They are much more aligned to a commercial objective.
They are dedicated to a specific national champion, an industry
that they pick and the technology that they pick that they want
to advance. They are much more closely aligned to a commercial
objective; and U.S. companies cannot participate in European
R&D contracts the way that Europeans can participate in ours.
Mr. Larsen. Mr. Chairman, if I may, just another question.
Can you provide the fundamental conclusion on
infrastructure programs on page 79, 80? Provide the committee
verbally your fundamental conclusion on infrastructure
programs.
Mr. Bogosian. Sure. Basically, the way you can look at this
is that there is a real blurring of the line between where the
European Government treasuries end and where Airbus's operating
or research budget begins. So you can just tack on the
infrastructure assistance as well on top of all the other
things we have talked about.
I can list a few examples. The City of Hamburg, Germany,
provided 751 million Euros, which is a sizable amount of money,
to fill in a swamp.
There was an NGO group that opposed this environmental
damage. They lost. So the 751 million Euros went ahead, and
they filled in a swamp so that A380 could have a production
facility in what was once the swamp.
French governments, federal, regional and municipal, have
provided 182 million Euros to create the aeroconstellation
site, which is another Airbus facility for the assembly of the
A380. So, again, you just keep tacking on. You have the royalty
based loans as launch aid, you have the debt forgiveness, you
have the infusions of capital, the direct checks that are
written, and then you have the infrastructure assistance. So it
is just one thing after another after another, and for them to
say that they are competing fairly against us is just a very
difficult argument to accept.
Mr. Larsen. Thank you; and, Mr. Chairman, thank you for an
opportunity to ask some questions.
Again, this report that the U.S. Department of Commerce has
put out through the International Trade Administration really
does provide an effective background for all of us on the
committee to get fully up to speed on the kind of case that we
need to be making in the international arena when it comes to
subsidies, and especially with this issue of launch aid which,
again, I will emphasize, launch aid has to end. It has to end
to create a fair and level playing field in the commercial
manufacturing arena.
Mr. Mica. I thank the gentleman.
Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman.
I have a concern in that, you know, we are hearing
persistent reports that members of the EU intend to go ahead
with launch aid on the 350. The way you outlined the dispute
resolution mechanism, Ambassador, it seems to me that if
tomorrow they announced launch aid and Airbus went ahead with
development, they would be selling planes before it is likely
that we would get a judgment, and then that would have already
created yet another problem for Boeing.
So, I am curious what--and, obviously, you are not going to
let out your strategy here, but if we have such an open-or-shut
case, which the two of you say in terms of Boeing isn't
subsidized--they are. It is pretty clear that this launch aid
is a subsidy. Then why have we lost precious time? We had a 90-
day agreement for delay, and we are past that now, and we
haven't filed.
Isn't there--there is a prospect here that we could see yet
another plane launched with subsidies that would hurt Boeing--
and Boeing has chosen a different strategy and a different
market with the 787, and we will find out in the end who is
right. The EU has created the plane Godzilla, and now everybody
who wants to have it land has to put out huge amounts of public
funds just to reinforce runways, widen runways and create the
facilities for it. So I am concerned about Boeing losing its
competitive edge in this strategy that they have chosen in this
interim period.
Mr. Allgeier. Certainly, we work very closely with Boeing
and other U.S. interests here to determine what is most
advantageous in terms of what is the best route to solve this
problem, between the litigation, where you have a lengthy
period, but we feel a very high probability of getting an
important win.
By the way, I want to emphasize that if we move forward
with this litigation that we would not just be seeking the
elimination of launch aid going forward, we would be seeking
the repayment of the launch aid that had been provided, whether
for the A350 or the A380.
That said, we certainly don't want to be dithering about
which course to take in a way that is going to be commercially
disadvantageous to U.S. interests.
So when the new U.S. Trade Representative came into office,
Ambassador Rob Portman--he was sworn in on a Friday. That
Saturday night, he got on a plane to Europe; and that Monday,
he met with Trade Commissioner Mandelson; and the first subject
they discussed was this aircraft dispute. So he has gotten
involved immediately to assess, in consultation with U.S.
industry, what is the best way to proceed. He has had a number
of discussions with Trade Commissioner Mandelson since then.
Let me just say that we are assessing this issue on
basically a daily basis to determine what is the best way
forward; and we will, as I said earlier, not dither at all
about moving forward. And if that requires litigation or if
that requires negotiation, we will take the course that we, our
advisors in the industry think best.
Mr. DeFazio. Now, Boeing and its employees in the U.S. are
potentially the principal injured party here, but obviously
when I raised these issues more than a decade ago, the cross
currents I got were, oh, my God, our customers buy Airbus and
they buy Boeing.
Are you getting pushback from any of the U.S. Airlines,
domestic interests that are involved with Airbus saying, you
know, we don't want this? Is there any question that we are
dedicated to resolving this issue of subsidies and particularly
preventing subsidies for the A350? Is there any question at
all?
Mr. Allgeier. There is no question at all about that, and I
can certainly say personally I have not been even approached by
interests such as airlines or others suggesting that we should
take any other course.
Mr. DeFazio. That is good to hear.
Mr. Bogosian, there is an issue you touched on briefly--
about the FAA significant resource challenges and the potential
for losing sort of our regulatory and certification advantage.
I guess, since you are with the Commerce Department and you are
expressing that, do we have a little kind of cognitive
dissonance within the administration where they are
recommending these cuts which could be to the disadvantage of
U.S. Industry and U.S. Carriers?
I have already heard previously from some of the smaller
plane manufacturers that the European system is not equivalent
to ours. That is, theoretically, we have equivalents. We
provide documents showing that our planes have met our
standards, which have historically been considered the gold
standard; and you would think the EU would accept them. Well,
they don't. They go through a lengthy review process to
advantage their manufacturers, particularly if they have a
model coming up that may compete. I heard this in particular
from one small jet manufacturer. We are already kind of at a
disadvantage because we play the game straight up.
They send over the paperwork. We say, yup, you did it
right. Okay, you can start selling in the U.S.
We send it over there; and they say, oh, no, we might take
a year or two to look at this.
So I am concerned that further delays or disadvantaging our
domestic process is going to put our manufacturers at even more
disadvantage. What plan do we have to deal with that?
Mr. Bogosian. Thank you, Congressman DeFazio.
When we say this is a Commerce Department report, it was
printed by us, and we managed the process. The FAA was a very
key contributor and author in this report. Their views are
fully represented, and this stands as a comprehensive document.
It is a collaboration between Commerce and NASA and FAA and DOT
and State and USTR and DHS, and you name them, they are all
here. All their views are here for the Congress.
From our perspective, what we look at is the competitive
side of these issues. We look at how the FAA handled their
matters, the USTR handled their matters, and we do our job,
which is to report to them. We give them data that relates to
how industry is being unfairly disadvantaged and discriminated
against, as well as an assessment of the industry's damage.
So when we look at the certification issues, we look at
things like the hushkits example, a case where an environmental
certification, which should just be done on a scientific basis,
was actually done in a way that they looked at the
specifications of a Rolls Royce engine and the specifications
of a Pratt and Whitney hushkitted engine, and they built their
certification rules on the specs, not on the noise that was
coming out of the engine.
Mr. DeFazio. Which would be WTO violative, as far as I
know, the least restrictive way to comply.
Mr. Bogosian. The harsh part there was, the fact that they
did that led to people not buying the Pratt and Whitney
hushkitted engines. So by the time they withdrew that
regulation and said, oh, sorry our fault, Pratt and Whitney had
already suffered the loss.
The same applies to safety certification. We don't want to
see games being played. You can take an example where a 737 had
to fly with four empty seats in France, and France only. And
you ask yourself, well, if the 737 next generation can get a
safety certification everywhere in the world but France, what
is it about the French rules that don't allow the 737 to fly
with those four people?
The coincidence there is that, without those four seats,
the Boeing 737 next-generation model was much more compatible
with its Airbus counterpart.
So those are the types of things that we look at. We look
at it from the competitiveness side.
Mr. DeFazio. You are raising some excellent points. I would
hope in the future that what we could do simply is just
retaliate. If they want to do things like that, that is fine.
Well, gee, the Airbus can't fly over Illinois with those seats
occupied. You know, there is some reciprocity here.
Years ago, I remember Lee Iacocca saying, if we started to
treat the Japanese, when they were moving into the van market,
their vans, the same way, hold them on the docks for 3 to 6
months, like they did his, then pretty quickly his vans
wouldn't sit on the docks for 3 to 6 months.
Somehow, you know, we play the game straight; they don't.
We take it year after year.
There are two questions. What is our strategy to deal with
that? And secondly, I was asking a question more specifically
about budget cuts at the FAA which are going to further
disadvantage U.S. manufacturers who want to get certified on
the safety basis when the FAA will accept the EU safety
certifications by just looking at the paperwork and saying,
fine with us.
Since all those parts of the administration were involved,
and you mentioned specifically the potential problems with FAA,
with these budget cuts, again, I didn't get an answer to that.
I realize maybe your minders are listening downtown, and you
can't say that we need more money. So I will say it. We need
more money. So I will answer that question.
But maybe you can go back to the first one. Are we looking
at a retaliative strategy in the future, to say, okay, fine, if
you want to do something like that, well, we are just going to
do it over here, too, until you stop doing it, instead of
letting them drive us out of the market like they did Pratt and
Whitney?
Mr. Bogosian. On the FAA question, I will get you an
answer. I can't answer that myself. I will get you an answer
from the FAA on the retaliation.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] T2499.001
Mr. Bogosian. Peter, if you want to take that.
Mr. Allgeier. We certainly look to insist that we are
treated fairly and in accordance with the obligations that the
other country has. I think it is true that in the past, on
these issues and on other issues, we have declined to play the
same game when the game involves playing outside the rules.
I think we need to look at each case carefully--and we
will--to determine what is the most effective way to get the
other side's attention and to get the problem solved. So I
appreciate your thoughts on this.
Mr. DeFazio. Mr. Rumsfeld might call it asymmetrical
warfare. Thank you.
Mr. Mica. I thank the gentleman.
Does anyone have additional questions? If we have no
additional questions now, we may have some additional questions
we will submit from the subcommittee to you to respond to. We
would appreciate that. I want to thank both of our witnesses in
this panel for participating.
We have two votes right now. We will probably reconvene
about 12:10, maybe 12:15 at the latest; and we will hear from
our last and second panel of witnesses.
So, again, I want to thank both of our witnesses for being
with us on this first panel. I excuse you at this time.
We will stand in recess until approximately 12:10, 12:15.
Mr. Hayes. Mr. Chairman.
Chairman Mica. Yes. I am sorry.
Mr. Hayes. With your permission, can I jump over this panel
and speak to the other one? I am not sure how I am going to get
back.
Mr. Mica. They are not up yet. If you wanted to make some
comment or leave something on the record that we could try to
get them to respond to, I would welcome that.
Mr. Hayes. Thank you, sir. I do appreciate that.
I appreciate the gentleman's testimony. Like Mr. DeFazio
said, we have to stick it to them, as they have been sticking
it to us. It is not called retaliation. It is called sticking
up for our people and products.
I appreciate you all being here. We need to be tough,
aggressive, competitive. We have got the best products. The
market needs their products; and I hope the FAA, Mr. Chairman,
will be as aggressive in the certification process making sure
that our products get certified. Yeah, we will do the budget
process and have the people there. But I want our FAA people to
aggressively, insightfully pursue the opportunity to get our
products to the marketplace.
Thank you again for the hearing.
Mr. Mica. I thank the gentleman and appreciate your
comment. Again, we appreciate your participation.
We will stand in recess and then hear the second panel.
Mr. Allgeier. Thank you, Mr. Chairman.
[Recess.]
Mr. Mica. The next order of business is our second panel
today, and this panel consists of three witnesses.
The first witness is Bryan T. Moss, who is President of
Gulfstream Aerospace Corporation; Mr. John W. Douglass,
President and CEO of Aerospace Industries Association of
America; and the third witness is Dr. Marc L. Busch, Associate
Professor of Queen's College School of Business in Kingston,
Ontario, Canada.
I would like to welcome our witnesses.
TESTIMONY OF BRYAN T. MOSS, PRESIDENT, GULFSTREAM AEROSPACE
CORPORATION; JOHN W. DOUGLASS, PRESIDENT AND CEO, AEROSPACE
INDUSTRIES ASSOCIATION OF AMERICA; MARC L. BUSCH, ASSOCIATE
PROFESSOR, QUEEN'S COLE GE SCHOOL OF BUSINESS, KINGSTON,
ONTARIO, CANADA
Mr. Mica. I will first recognize Bryan T. Moss, president
of Gulfstream Aerospace Corporation.
Welcome, sir. And you are recognized.
Mr. Moss. Thank you, Mr. Chairman. Thank you, sir.
Mr. Chairman, it is indeed an honor for me to be here today
on behalf of Gulfstream's more than 7,000 employees.
Mr. Chairman, you have my opening statement, which has been
submitted to the subcommittee; and with your permission, sir,
in the best interests of preserving time, I wish to summerize
this opening statement.--
Mr. Mica. Without objection, your entire statement will be
made part of the record. Please proceed.
Mr. Moss. Thank you, sir.
Before I proceed, sir, let me, for the record, express my
personal thanks and appreciation for the hard work you and the
subcommittee have done on behalf of our industry, in particular
for the efforts on the Reagan Airport issue.
To summarize the items in my opening statement, sir, first,
we need FAA certification services that will allow us to bring
new products into service in an increasingly competitive
market.
Secondly, we are not supportive of user fees and increased
excise taxes to cover the shortfall created by a declining
general fund contribution.
Thirdly, further reductions in NASA's aeronautics research
budget pose a direct threat to this country's ability to
sustain a leadership position in aviation, with significant,
negative impact on national security, safety and our economy.
Fourthly, and importantly, government subsidies to foreign
aircraft manufacturers provide them significant competitive
advantages and enable them to bring more new products to the
market sooner at aggressive pricing and with little or no
financial risk.
In short, Mr. Chairman, we cannot compete with national
treasuries.
Finally, sir, in view of these issues and our concerns, I
respectfully suggest we consider broadening the application of
a new bilateral agreement and large civil aircraft to include
all aircraft.
Thank you, sir, for the opportunity to be here to present
these views. It is a privilege for us. And that concludes my
remarks, sir.
Mr. Mica. Thank you.
Thank you. And we will now hear from Mr. John Douglas,
President and CEO of Aerospace Industries Association. Welcome,
and you are recognized sir.
Mr. Douglass. Thank you, Mr. Chairman, and Mr. Costello and
other members for the opportunity to join you here today in
this important hearing today.
Sir, with your permission, I ask that my full statement
be--
Mr. Mica. Without objection, so ordered. And please
continue.
Mr. Douglass. Mr. Chairman, my summary of my statement will
focus on two critical areas of concern, launch aid provided to
Airbus by European governments, and government-funded research
and development on both sides of the Atlantic.
For fair trade to take place, Mr. Chairman, the jet
transport industry must be an industry without government-
provided launch aid, aid that is in direct violation of the WTO
subsidy codes. With this in mind, AIA commends the U.S.
Government on its decision to withdraw from the 1992 bilateral
agreement on large civil aircraft. The 1992 agreement allowed
for European governments to provide launch aid for large
commercial aircraft as long as the total launch aid was equal
to or less than 33 percent of the overall cost of development.
Launch aid shields companies like Airbus from assuming complete
commercial risk and allows producers to pursue more aggressive
pricing and financing practices.
Since its inception in 1970, Airbus has benefited from a
total of $15 billion in launch aid, including recently a $3
billion-plus loan for the new A-380. This was discussed in the
first panel today.
U.S. Industry estimates that over the years this launch aid
has allowed Airbus to keep a total of approximately $35 billion
in debt off its books. Despite the ongoing negotiations
outlined by the first panel, the problems involving Airbus and
launch aid continue with Airbus' recent request for launch aid
for its planned new A-350 aircraft.
I must say, Mr. Chairman, that with the granting of any
launch aid for the A-350, AIA would support further WTO action
by the administration.
For too long, European treasurers have shielded Airbus from
the same market risks that American commercial competitors
face. At the time of the 1992 agreement's implementation,
Airbus was a company with four product lines, 38,000 employees,
and 8.8 billion in annual revenue. Today, Airbus has 12 product
lines, 51,000 employees and more than $25 billion in annual
revenue.
By 2004, Airbus was delivering more aircraft per year,
producing more products and had a higher revenue than its main
competitor, Boeing Commercial Airplanes.
Industry's position on these issues has remained
consistent. We want to avoid a trade war, we want to see a
negotiated settlement with EU as soon as possible, and we want
to ensure a level playing field for the civil aircraft market,
not one encumbered by European launch aid.
Mr. Chairman, the Boeing-Airbus dispute is not the only
cause for concern to our industry. The European Union, through
its plan, "A Vision for 2020," has clearly stated their
intention to dominate the world aviation market. As a means to
that end, the Europeans have begun to invest heavily in a
coordinated and targeted aeronautics research and development
program. From the start of $45 million in 1990, the EU has
dramatically ramped up funding for aeronautics to more than
1.52 billion on aeronautics research between 2002 and 2006. It
is safe to say that the state of aeronautic research in the
U.S. Is not as well off as it is in Europe.
Over the last 10 years, funding for NASA's aeronautics
research has been cut nearly in half. NASA's recent lack of
attention to basic seed corn research will impair the U.S.
Industry's future ability to compete in the global aerospace
market.
The U.S. Must renew its commitment to aeronautics research,
establish a national policy for aeronautics, and provide the
necessary funding to undertake needed research.
In summary, Mr. Chairman, it is in neither the interest of
the United States nor the European Union to have a trade war
that would damage the global aerospace industry and undermine
economies across the globe. Officials on both sides of the
Atlantic should build a consensus on replacing the 1992
bilateral agreement in a way that makes the civil aircraft
market more competitive and averts a potentially long and
acrimonious dispute in the WTO.
A newly negotiated agreement must level a competitive
playing field before large aircraft manufacturers--indeed,
aircraft manufacturers in general--and should include a
prohibition against government launch aid subsidies in
accordance with the subsidy code of the WTO.
In 2004, Boeing delivered 285 aircraft, Airbus delivered
320. In the same year, Boeing announced 272 orders, as compared
with Airbus' 370 orders. Boeing's backlog is now nearly 30
percent less than Airbus'. The playing field is essentially
level in every possible measure, with the exception of
government aid. Airbus should not be allowed to flourish under
the protective cloak and open treasuries of European
governments. The time to end this launch aid is now.
And Mr. Chairman, I look forward to answering any questions
you may have, sir.
Mr. Mica. Thank you.
And I will hold the questions until we have heard from Dr.
Marc Busch, Associate Professor of Queens University, School of
Business, Kingston, Ontario, Canada. Welcome, sir, and you are
recognized.
Mr. Busch. Thank you, Chairman Mica, Ranking Member,
Costello, thank you for this invitation to appear before this
subcommittee to discuss global market factors affecting the
U.S. Jet transport industry. I applaud the subcommittee's
leadership in examining this important topic.
In the late 1980s, when the Boeing-Airbus dispute was
splashing across headlines, then-USTR Ambassador Michael Smith
warned the House subcommittee that, "decisions about launch aid
and things like that should not be taken lightly, either by the
governments involved or the industries involved."
Today, on the eve of WTO litigation, his words are no less
relevant. Indeed, launch aid "and things like that" continue to
be a considerable source of tension in the industry,
specifically with the 787 destined to go head-to-head with
Airbus' A-350.
As was true in the late 1980s, the U.S. charges that Europe
receives direct subsidies, and Europe countercharges that the
United States offers indirect subsidies to its national
champion. Is this, as Yogi Berra might have put it, "like deja
vu all over again?"
Some things about this commercial rivalry have not changed.
The industry is still a catalyst of economic growth and
competitiveness, not only because of the vast number of high-
paying jobs, but because of the technological spillovers
exhibited by this industry for those who benefit from them
upstream, in particular. It is also, of course, as has already
been pointed out this morning, an industry with remarkable
export prowess.
Other things about this commercial rivalry, however, have
changed. There are two notable differences between today and
the tensions that gave rise to the 1992 bilateral: first, the
rise of the regional jet market; and second, the advent of the
World Trade Organization.
First, the regional jet market, which is dominated by
Canada's Bombardier and Brazil's Embraer, is increasingly vying
for orders with both Boeing and Airbus. As the Department of
Commerce's study explains, Embraer is, "starting to blur the
traditional line between large civil aircraft and regional
jets," going above 100 seats in particular, a move Bombardier
is now seeking to match.
Thus, while a lot of attention has been paid to the flight
test of the enormous A-380, the fact is that the smaller
airplanes that are being launched by these two vendors are
increasingly putting both Airbus and Boeing to the test, a
point made very clear in Boeing's Current Market Outlook 2004.
More worrisome, though, is the fact that at times, through
the past couple of decades, these two competitors have been
subsidized, posing a new competitor threat to both Airbus and
Boeing. In short, subsidized competition in civil aircraft is a
much more widespread problem today than it was on the eve of
the 1992 bilateral.
Second, and related to this, the WTO for its part is a much
more viable forum in which to litigate this dispute this time
around. This is because, as has already been pointed out this
morning, the WTO's subsidies code is much more vigorous and the
dispute settlement mechanism is much more robust. In the early
1990s, when the U.S. and the European Union readied to go to
the GATT to fight this dispute, the fact was that the relevant
disciplines and the dispute settling mechanism were not up to
the task. That is no longer true. Particularly, there is no
longer any potential for a losing side to block the adoption of
a panel report, or for that matter, to stand in the way of
authorization to retaliate, one of the brand-new features of
the WTO mechanism. Taken together, the regional jet market and
the WTO, it is perhaps time now to finally litigate this
dispute and to do so with a little more determination.
The WTO has historically worked, as the Ambassador pointed
out this morning, by inducing early settlement. That means
that, by and large, both parties to a dispute settle before the
case is even paneled, never mind before a panel issues a
ruling. To date, that has not happened in the civil aircraft
dispute; consultations were not successful, nor has the cease-
fire been. That is okay, because perhaps it is really important
for us to get this one litigated once and for all, and to do so
with a couple of factors in mind.
First, there are some things to learn from the Canada-
Brazil disputes that have gone to the WTO. To date, both sides
have challenged each other's subsidy schemes, and both sides
have chalked up some victories. And these victories have served
to do two things. They brought clarity to the law, in that they
have helped us understand what the WTO finds legal and not, and
in fact, they have had bottom-line outcomes. For example,
Bombardier has witnessed two subsidy schemes, that Brazil has
benefited from, essentially eliminated; and a third, called
PROEX III, essentially handicapped. For its part, Brazil has
one big notable victory against Canada and a couple of
failures.
We can learn a lot from these disputes. And these disputes
remind us that while the WTO is itself not an answer in all
cases, in civil aircraft it may be very viable not only because
of the legal clarity that we will get but because, as in the
case of Canada and Brazil, it has forced both sides to return
to the negotiating table to find a long-term robust solution
for this dispute.
Let me conclude by suggesting that WTO litigation in the
current Boeing-Airbus dispute will serve three purposes. First,
as I have said, it will bring legal clarity to what has become
a very politically charged and heated dispute. It is time for
the WTO to render verdicts on these charges and countercharges
and to help us move forward.
Second, the litigation will not only implicate the United
States and the European Union, it will implicate Canada and
Brazil as well. With the regional jet market now essentially
melding into the large civil aircraft market, it is time to
bring disciplines to subsidies across the board and to level
the entire playing field.
And third, as I mentioned, WTO litigation will likely prod
both the United States and Europe, with greater legal clarity,
to return to the negotiating table, but this time we must
return to the negotiating table with all four parties: the U.S.
and Europe, Canada and Brazil. It is time to bring sanity to
this industry across the board.
To its credit, the 1992 bilateral agreement foresaw the
need to multilateralize these provisions. It foresaw the time
when it would be crucial to multilateralize subsidy disciplines
in civil aircraft.
Today it is no longer visionary to say that; it is simply a
fact. It is time to get this industry on a level playing field,
but to realize the industry has changed. Thank you very much.
Mr. Mica. Well, thank you.
And I thank all of our witnesses and this panel for their
testimony. I have a few questions.
Mr. Moss, you just heard Dr. Busch talk about RJ Production
producing smaller aircraft that compete with some of the
product that you have; is this a problem?
Mr. Moss. Sir, it is not so much the RJ as it is the rest
of the Bombardier product line. Across the entire product line,
they benefit from exactly the type of assistance and subsidy
that Dr. Busch is referring to. We do not at this point in time
compete directly with the RJ or with the RJ derivatives, but it
is a huge issue for us simply on a day-in/day-out basis, facing
these aircraft in the marketplace.
Mr. Mica. We have produced no RJs in the United States at
this time, right? I guess you have produced probably the
largest passenger aircraft of a smaller size?
Mr. Moss. Yes, sir. The largest business and corporate
aircraft of its kind.
Mr. Mica. I have read recently where--I think it was
Bombardier just announced that they are going to provide some
subsidies for production of smaller aircraft and competing
aircraft. Anyone aware of--I read that most recently.
Dr. Busch.
Mr. Busch. Yes. Bombardier has sought to secure assistance
both from the Federal Government of Canada as well as from the
Province of Quebec.
Mr. Mica. And was some of that in the form of loans for
development product?
Mr. Busch. Yes, I believe it is.
Mr. Mica. How much Federal subsidization of financing are
you getting, Mr. Moss? Come clean.
Mr. Moss. That is easy, sir. None.
Mr. Mica. Oh, okay. All right. Thank you.
You advocated also a new international agreement to include
all aircraft. Certainly we would want to put some pretty tight
restrictions on any type of aid or assistance. How would you
craft that?
And I think we also heard Dr. Busch say that we need to
include other participants, such as Brazil and Canada. Would
you agree with that, and how would you craft it, Mr. Moss?
Mr. Moss. Well, my experience, sir, we see daily the impact
of the subsidy issue in the marketplace. Dr. Busch and I have
not discussed that issue, but I must agree with the premise
that he has put forward that any opportunity for a meaningful,
long-lasting resolution of that issue must involve those
parties who are involved on an everyday basis, so those would
be U.S., Europe, Canada, and Brazil.
Mr. Mica. As we lose more market share, Mr. Douglass, what
is the effect you are seeing on overall viability of America's
aerospace industry?
Mr. Douglass. Well, clearly the commercial aviation market
is about 50 percent of our sales, Mr. Chairman. And so when we
lose global market share, it has an impact across the board in
terms of the number of people that are engaged in the industry,
our ability to fill new products, and our overall viability as
an industry.
Mr. Mica. I have watched us lose a number of industries in
the United States in commercial activities. You get sort of
this belief that some product is added in the United States or
some product is added to a foreign product where it is
assembled someplace else, and that is a reason to back off.
What do you think about that, Mr. Moss, Mr. Douglas, Dr. Busch?
Mr. Moss. Well, sir, may I? In a former life I worked with
an offshore--or a foreign company. I am very familiar with the
thought processes that lead to trying to determine whether or
not you are a product from north of the border or south of the
border. And I plead guilty to a certain personal view, sir, but
I believe that the country of origin of manufacture is what is
critical, not so much where the components come from that are
in that aircraft.
Mr. Mica. Mr. Douglass.
Mr. Douglass. Well, sir, as you know, this is what makes
this problem so complicated. In regards to the issues between
us and Europe, for example, we are Europe's biggest customer
and Europe is our biggest customer. Most of the European
products have somewhere between 30 and 50 percent of the
American content. Many of the other airplanes manufactured in
Brazil and Canada also have high degrees of American content.
So when you get into one of these complicated issues like we
are discussing this morning, you have business interests here
in the United States essentially on both sides of that issue,
and that does complicate the issue.
I think what is really important is what was said by the
first panel, and that is that when a case gets to the point
where both the government and the industry agree that the
international situation warrants taking a case to the WTO, you
have reached a point where it has become super-critical. And we
support what the administration is doing in the case of the
Boeing-Airbus dispute, despite the fact that we obviously sell
a lot of product to Airbus.
Mr. Mica. Dr. Busch.
Mr. Busch. Well, I concur with Mr. Douglass' points. The
crucial issue is really when you begin to lose some of the more
complicated high value-added manufacturing, notably the systems
integration work and the like, which not only employs, as has
been pointed out, people at high wages, but moreover teaches us
through learning-by-doing, to go on and truly enjoy market
share in other upstream industries by virtue of having mastered
those technologies.
Mr. Mica. I thank you all for your responses. Let me turn
to Mr. Costello.
Mr. Costello. Mr. Chairman, thank you.
Mr. Moss, let me ask you first, and then Mr. Douglas and
Dr. Busch as well.
I serve on the Science Committee as well, and we have been
attempting to convince the administration to increase, not cut,
the R&D budget of NASA as far as the aerospace industry is
concerned. And I wondered, if just for the record, if each of
you, beginning with Mr. Moss, if you would comment on the
effects of the declining research budget for NASA. I made a
reference to the figures in my opening statement from a high in
1994, I believe it was, fiscal year 1994, almost 1.6 billion,
down to now about half of that for fiscal year 2006 is what the
President is proposing. And I wondered if you might comment on
what the declining R&D has done and will continue to do if we
continue to see a reduction in NASA's R&D budget.
Mr. Moss. Yes, sir. I think from a broad standpoint it is a
threat to the leadership that this country has enjoyed for a
long period of time. The areas that are of interest to us--
there are areas that involve safety, security, productivity, et
cetera. And by and large they are areas that we could not
afford to pursue on our own.
The ability to have NASA involved in that type of project
is extremely important to us, as much as an industry benefit as
just a Gulfstream benefit, because in many cases the results of
efforts in that area are available to a wide spectrum of
constituents.
Mr. Mica. Mr. Douglass.
Mr. Douglass. Yes, sir. That is a great question, sir. I
guess the place to begin is to say that the erosion that you
spoke about in your statement is going to be a problem for us
for years to come because you can't just overcome this
overnight. We have got to start overcoming it today. The basic
seed corn that NASA puts into aeronautic funding supports a
whole broad area of not only support to our commercial aviation
and business aviation market, but also to our national
security.
I think I have testified before this committee on other
occasions and the personal experiences I have had where NASA's
aeronautics research pulled the bacon out from me when I was
Assistant Secretary of the Navy when we had problems on the F-
18.
So there is no quick fix to this. I am heightened by the
fact that Representative Wolf has agreed that we are not going
to accept the administration's cut this year, and at least we
are going to restore the budget back to where it was last year.
It is going to take us some time to rebuild this; there is a
lot of rebuilding to do. Some of the areas where we have to
immediately begin to pay some attention to is turbine engine
technology and rotorcraft technology.
I took a briefing yesterday, and that briefing will be
given to my board meeting tomorrow down in Williamsburg about
the number of rotorcraft that we have lost in the war on
terror. It is an alarmingly high number. And when you look at
the root cause for that, it ultimately takes you back to the
fact that we haven't made much investment into rotorcraft
research and development over the last 15 years. NASA has
backed away from their joint program with the Department of
Defense. So, sir, we are in complete agreement with you that
this is a national strategy and national policy that needs to
be put in place and needs to be rebuilt if we are going to
maintain the $30 billion-plus positive trade surplus that our
economy enjoys from this aerospace marketplace.
Mr. Costello. Dr. Busch, do you care to comment?
Mr. Busch. Only to note that to increase NASA subsidies is
not necessarily to run afoul of trade rules. The remarkable
thing about NASA subsidies through the years is that, for
example, the Japanese are largely argued to have learned
composite materials from NASA R&D. And for that matter, Airbus
has tested a lot of designs in NASA facilities. So it is
important to not be deterred by virtue of certain of the
allegations made in the current dispute, that anything through
NASA is necessarily an illegal subsidy.
Mr. Costello. Mr. Chairman, I have no further questions,
but I do want to encourage our--first of all, thank the
panelists for being here. And secondly, encourage you to weigh
into the administration as to the importance of trying to
increase the R&D budget for NASA. Thank you.
Mr. Mica. The gentleman is recognized, Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
Mr. Douglass, both Dr. Busch and Mr. Moss talked about
including Canada and Brazil in a new type of agreement. What
does the organization have to say about that proposal?
Mr. Douglass. You know, when you listen to the first panel
and you listen to our Trade Rep talk, he went into some length
to explain that the key ingredient of bringing forward a trade
case was liaison between administration; in this case the Trade
Representative and certain segments of the industry.
Right now the focus of the Trade Rep's attention has been
placed on the large aircraft arena. We have heard testimony
this morning from Mr. Moss and others that the other parts of
the civil aviation marketplace feel that their sector of the
market is also disadvantaged by these European subsidies, and
indeed, by subsidies that you mention from Canada and Brazil.
The next step in the process would be for those portions of
our industry to engage with our Trade Rep to make the
determination whether or not it is in our national interest to
enter into an additional dispute that goes beyond the Boeing-
Airbus dispute today. But until that full liaison step has been
taken, I would be reluctant, sir, to bring that into this
current dispute. I think for now we need to solve the large
aircraft dispute, but I certainly believe that if the rest of
our industry feels that they are at a disadvantage, too, our
Trade Reps need to listen to them and then determine what that
next step would be.
Mr. Larsen. Thank you. Could you comment a little bit on
your testimony, Mr. Douglass, about the International Civil
Aviation Organization and its role in--its role in some of
these proceedings on competitive advantage on the lap of a U.S.
Appointment?
Mr. Douglass. Yes, sir. Mr. Chairman, what the Congressman
is referring to is the fact that up in the International Civil
Aviation Organization, the United States gets one vote, the
European individual countries each get a vote, and they always
vote as a bloc. So on any particular issue that might involve
trade or something where we might have a national interest,
they might have a national interest, we are outgunned, I don't
know, 25 or 30 to 1 before we even open the subject. That is a
structural problem that needs to be resolved.
Secondly, the current U.S. Ambassadorship to ICAO is
vacant. The industry has endorsed a candidate. We would
strongly encourage the administration to move forward on that
position and appoint that candidate as the U.S. Ambassador to
ICAO.
Mr. Larsen. Thank you.
Dr. Busch, you talk about a multilateral approach, but
let's focus on the bilateral approach right now.
We heard testimony earlier about what steps would have to
take place. What steps do you recommend the USTR take from this
point forward? Just keep in mind the bilateral approach.
Mr. Busch. Well, just to comment on Mr. Douglass' point, I
am not suggesting that Canada and Brazil be directly targeted
through WTO litigation on this point. Rather, I am talking
about what Ambassador Allgeier points out earlier, which is
that when we finally turn to try to negotiate a robust
resolution, it must include two additional seats at the table.
That can happen after a WTO verdict is rendered in the
bilateral dispute, or it can happen before a ruling is issued
in this dispute. Either way, what will happen now is the United
States is likely to pull the trigger on a panel request.
Interestingly enough, it is quite common at the WTO for two
parties to settle essentially out of court at the panel stage
but before ruling is issued. If the case ultimately is ruled
one way or another, obviously it is a little bit more difficult
to begin to negotiate, but hopefully after we have cleared some
hurdles. And Ambassador Allgeier points out that there are a
couple of additional steps in the dispute settlement process.
For example, a U.S. Victory would invariably be appealed. Once
appealed, the United States and Europe may find themselves
before a compliance panel, which would be the original panel
asked to see whether Europe had done anything to bring its
measures into accordance with WTO obligations. If in fact
nothing had been done, the United States could then proceed to
ask for authorization to retaliate. This case could, as
Ambassador Allgeier pointed out, go on easily for 2 years
beyond the panel request.
Those are the steps that will happen most likely. This
dispute has very few of the markings of a case that would
settle early. And as I tried to suggest in my testimony, we may
be at a point where it would be tremendously valuable to have
this go the legal distance, to again have the WTO actually come
down one way or the other on the charges and countercharges
that, as I said, we have been listening to now for well over a
decade.
Mr. Larsen. I want to be specific about this question. I am
not asking what you hope or we hope, but what would you expect
would be a result? And what would you expect to be accomplished
from further pursuit through this current process?
When I say that, I know what I hope the answer would be,
but I am asking you, as somebody who spent some time thinking
about these issues, what would you expect to be accomplished?
Mr. Busch. I would like to see the WTO render a verdict, as
I said, on the charges and countercharges. My deep suspicion is
that ultimately no legal verdict will bring an end to the
dispute in total, that ultimately we will have to have
negotiations. There the question will be: Is there anything shy
of zero launch aid that is tolerable on the U.S. Side? The
question bears asking by virtue of the fact that the 1992
bilateral set an informal benchmark against which any future
deal might be assessed, both by those in political office and
by those in the media. It is a salient focal point; it is a
salient focal point for future negotiations.
Undoubtedly, there will be a request that whatever
compromise be had on launch aid, the Europeans will undoubtedly
think that number should be shy of zero. If the United States
is not of a similar mind, then I think we have a problem. Which
is why, again, going to the WTO and having decisions rendered
on certain of these charges and countercharges will help clear
the air and get us to start thinking about where the comprises
are, and ultimately what our reservation point for, as
Ambassador Allgeier pointed out, a good deal, not just any
deal.
Mr. Larsen. Sure. Mr. Douglass and Mr. Moss, any comments?
Mr. Douglass. The only thing that I would say is we expect
the outcome to be a prohibition against launch aid in total.
And you may recall, sir, that--I don't remember whether this
was mentioned in the first panel or not, but if you go back to
the original 1992 agreement, the agreement spoke of a gradual
phasing out of launch aid and taking it down to zero. That is
one of the reasons why our Nation withdrew from the agreement,
because they felt the Europeans stayed at 33 percent and
wouldn't move towards zero. So the national goal is clearly to
move towards zero.
Mr. Larsen. You may recall from my opening statement that
launch aid was one of the themes.
Mr. Moss. From our perspective, any delay in dealing with
the issue will have an impact on us. Time is not on our side,
it is on the side of others, so it simply means we will have to
continue to deal with this imperfectmarket and the benefits
they get through subsidies through some period of time, sir.
Mr. Larsen. Thank you.
Thank you, Mr. Chairman.
Mr. Mica. Thank you. Are there additional questions?
Just a couple of points here.
Mr. Douglass, if you underwrite the research and
development of a new aviation product or commercial aircraft,
then you underwrite the financing, and then you underwrite some
of the promotion, and then--well, I won't get into the bribes
part we heard about, but what are the chances for our American
manufacturers to compete?
Mr. Douglass. Sir, it really only leaves us one area to
compete in, and that is technology. And as you know, we have
heard--all of the witnesses agree that the difference in the
way we deal with unclassified technology here in the United
States is we do most of our civil aviation technology through
NASA, and then it becomes available to all concerned. Whereas
over in Europe, their research and development is very
targeted, and it is restricted to the companies involved in the
research and development.
So, for example, we will be doing open research on flight
controls or fluid dynamics or combustion at extremely high
speeds. This is very basic research which helps you build
products. On the European side, they have a tendency more to
actually help a company take their product all the way to the
marketplace.
And so even in our final area where we have had a
traditional advantage, which is a higher level of technology in
general in our aerospace market, it will become increasingly
difficult for us to compete unless we see a national
willingness to invest in aeronautics research.
Mr. Mica. I am wondering, maybe your Association could
provide us for the record some information on--some hard
information on--I guess during the build-up of this, America's
space industry--and also the build-up of the military, I guess,
during the Reagan administration--you had both defense and NASA
being very heavily involved in R&D, and also developing systems
or technology improvements that might be of benefit to the
industry.
However, since basically the downfall of the Soviet Union
in the early 1990s, you have seen us dismantling our efforts to
really aid our defense industry in R&D and the dramatic fashion
we saw previously. And then you have seen a decline in interest
in activity, in us promoting R&D in space technology. If you
have any figures of that pattern, I would like to submit them
for the record. And then also, any evidence of increase from
the European Union.
And I guess their national defense budget is just a few
percent points of their entire national budgets. We ended up
picking up most of the tab for defense, but I would be
interested to see how they compare an increasing--and if you
could target the dollars as you have seen going towards R&D, I
would like to have that for the record if you could supply it
to the subcommittee.
Mr. Douglass. Yes, sir. We would be glad to do that. There
are some interesting trends.
There is another trend that I would remind you of, sir, and
that is a couple of years ago I was one of President Bush's
commissioners on a commission that looked at the future of the
industry. And one of the things that became very clear to us--
and this was a bipartisan commission, it was half of the
members came from Congress and half from the administration--
was that military research and commercial aviation research in
recent years have sharply taken different courses. Military has
spent most of its money moving away from platforms towards
network centric warfare. The few things that they have done on
platforms, like stealth, have very little application in the
commercial marketplace.
And we have also seen institutional barriers arise that
essentially prove that this argument that Boeing gets some
great windfall from its defense contract is just not true,
because technology is not flowing across those boundaries.
Indeed, under your leadership, Mr. Chairman, we have
established the Joint Development and Planning Office for our
next air traffic control system because we would like to go
back and get some of that DoD technology, not to help Boeing,
but to help the FAA develop the new air traffic control system
in the future. So we do have some statistics, sir, and we will
try to respond to your request.
Mr. Mica. Well, I think that concludes my questions. We may
have additional questions we will submit to you for response
and inclusion in the final record of this hearing.
So we do thank each of you for your participation, for your
patience in staying, even though your panel was delayed by
votes, and look forward to working with you as we look to
resolve some of the problems that have been highlighted by this
hearing.
There being no further business before the Aviation
Subcommittee, this hearing is adjourned. Thank you.
[Whereupon, at 1:00 p.m., the subcommittee was adjourned.]
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