U.S. Rep. Adam Smith (D-Wash.) today pushed the top Defense Department acquisition official to provide more information related to the recent tanker decision involving Northrup Grumman / EADS and Boeing.  Smith questioned Under Secretary for Defense for Acquisition John J. Young, Jr. during a joint hearing of the House Armed Services Committee Air & Land Forces and Sea Power & Expeditionary Forces Subcommittees.

“This decision raises a number of serious issues, from procurement process concerns to trade and economic implications.  The key point that came out during my exchange with Under Secretary Young was that the Air Force did not take into account the illegal government subsidies provided to Airbus by European governments – the very subsidies that our government is currently suing the European Union over.  As our own government has argued, subsidies like these allow companies unfair advantages against U.S. competitors and are illegal under international trade rules.  The Air Force procurement officials, however, did not take that critical factor into consideration meaning that as a question of policy it is up to Congress to take a closer look.  Watch for Congress to do so in the coming days,” Smith said.

Partial Transcript

Smith: Did you consider the subsidy issue?  Because one of the things we are really wrestling with here is that we are starting a WTO case against Airbus for unfairly subsidizing its competition against U.S. products.  It’s obvious the case is still in development but for years it hasn’t been terribly debated that Airbus is subsidized.  At a minimum they have a bank out there that they can take risk against that they know will cover them, which is no small item.  So … how do we balance as a government that we have on the one hand complaining about a subsidized competitor and then on the other hand giving that subsidized competitor a contract when arguably part of the reason they are able to keep their costs down is because they are being unfairly subsidized?

Young:  Again, the laws and regulations really don’t let me address in any way the subsidy issue that will be settled in another forum on a nation-to-nation and on an international forum. What we evaluated was the products that were proposed.  I did have a discussion with the Air Force to try to make sure, and I would do this in any process; it’s not just this particular program.  We don’t want an industry to buy in to a program because usually that comes back to haunt us in terms of increasing costs and other factors.  My understanding is that the Air Force assessed both team’s proposals; both team’s proposals present accurate assessments of their costs, and both teams proposals, I will tell you, include profits for both makers.  So we believe they both proposed their costs plus profits, we evaluated those performance and those costs benefits to the government.

Smith: So just so I can clarify: your decision therefore was based in no way on the subsidy issue, whether they were subsidized or not.  So in essence what you are saying is, if that is an issue of public policy, it would be an issue of public policy that Congress will have to address.  It was not addressed in your original decision…if that was an issue that was important to the country it would be something that Congress would have to deal with.