European nations allege U.S. protectionism in tanker deal

PARIS -- A wave of indignation has swept the major industrial nations of Europe over the Pentagon's handling of a $40 billion contract to buy new aerial refueling tankers, with political and economic leaders accusing the Obama administration of protectionism.

France, Britain and Germany accused the Defense Department of altering specifications for the new tanker to favor Boeing against Europe's Airbus consortium, which had bid for the contract in partnership with the U.S. firm Northrop Grumman. Northrop gave up and pulled out of the bidding last week, sinking hopes for Airbus as well and touching off the chorus of European complaints.

The commercial defeat for European Aeronautics, Defense and Space (EADS), the parent company of Airbus, came as tensions were already high between Europe and the United States over disputed proposals for new international financial regulations, with Europeans generally pushing for tighter controls and the Obama administration resisting in the name of free markets and free trade.

In addition, Obama administration officials have mounted a vigorous campaign in recent months to woo Brazil's government away from buying France's Rafale multirole combat fighter, as promised by President Luiz Inácio Lula da Silva during what amounted to a sales visit to Rio de Janeiro in September by President Nicolas Sarkozy. The Rafale, produced by France's Dassault Aviation, has been in competition there mainly with the F/A18 Super Hornet, also produced by Boeing.

"What is shocking is that you have a government in Washington that never stops making speeches about free trade and anti-protectionism, and then when the choice comes down to the wire, it's their national interests that prevail," said Bernard Carayon, a member of the French National Assembly's finance committee. "This is a crisis that will leave some traces."

Sarkozy is expected to bring up Europe's irritation with President Obama during a visit to Washington at the end of the month, a French government spokesman said.

Carayon, in an interview, said the outrage is widely shared in Paris, where bidding for construction of the 179 new tankers was viewed as the latest and most egregious example of long-standing U.S. protectionism. Three dozen members of Parliament, he added, have signed a petition to be released soon urging European Union trade authorities to take action to guarantee better treatment for European companies in the U.S. market.

Ashton Carter, the undersecretary of defense in charge of military purchases, told reporters in Washington that the Pentagon appreciated the contribution of European industries and asserted that no protectionism was involved in drawing up new specifications for the tanker. But his assurances did little to calm the anger in Europe.

"I confess I did not appreciate this decision," Sarkozy said at a news conference Friday with British Prime Minister Gordon Brown in London. "This is no way to act." If the United States "wants to be heard in the struggle against protectionism, it should not give an example of protectionism," he added.

Brown agreed, saying he was "very disappointed" by the Pentagon's conduct. "We believe there must be free markets and free competition," he said.

The German economy minister, Rainer Bruederle, charged in a statement that the Pentagon had deliberately drawn up new specifications to give Boeing an advantage over Airbus. The German government's aerospace coordinator, Peter Hintze, called on the Obama administration to "rethink" its specifications but acknowledged that the chances of it doing so were slim.

"It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type," the European Union's trade commissioner, Karel De Gucht, said in a statement in Brussels. "The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract."

The uproar in Europe marked the latest chapter in a decade-long tug of war over the contract, one of the largest up for bidding -- and one of the most troubled.

Boeing offered a military version of its new 767 airliner, while Airbus proposed an A330 to be converted in the United States by Northrop Grumman to replace the current fleet of Boeing tankers dating as far back as the 1960s.

During a first round of bidding, Boeing was eliminated in 2004 because of a corruption scandal. The partnership of Airbus and Northrop Grumman was awarded the contract after a second round in 2008. Boeing contested the award, charging that bidding rules were not followed by the Air Force, and the deal was opened up yet again.

An EADS spokesman in Paris, Pierre Bayle, declined to explain what lay behind the accusations of favoritism in the latest round. But Carayon said the Pentagon's specifications of range and carrying capacity, among other things, seemed designed expressly to fit the smaller Boeing 767 and eliminate the larger A330.

The loss came at a particularly bad moment for EADS. Just as Northrop pulled out of the tanker war, the Paris- and Munich-based consortium announced losses of more than $1 billion for 2009, in large part because of delays and overages in its effort to build the A400M military transport plane that is on order by several European governments.