[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 
22-499 PDF

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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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