8 October 2004. Published on TNI website
In October 2004, harsh words exchanged between Washington and Brussels on subsidies to aircraft manufacturers made headlines. The foundations for this quarrel lay in an agreement made in 1992 between the European Union and the US on financial support to the producers of large civil aircraft, mainly Boeing and Airbus.
Now that Airbus has become a mature company on this market, the contents of this agreement are souring trade relations between the US and the Union. The US accused European capitals of over-subsidising Airbus, and the US has brought a WTO case against the EU. Brussels states that the US government is misusing its tax benefits. The European Aerospace lobby (1) moreover claims that Boeing receives well above the 3 or 4% ceiling of turnover for indirect support to military and space programmes, providing identifiable benefits for the development or production of large civil aircraft. The word ‘identifiable’ is essential because subsidies for the production of arms are free of limits. All major trade agreements include a so-called ‘security exception’ clause. This clause was included, for example, in the Multilateral Agreement on Investments (MAI) which passed away after an effective lobby by anti-MAI campaigners, and it may also be found in chapters of WTO agreements, such as the GATS and TRIPS.
The security exception aims to keep defence production and the arms trade out of the free market paradigm. The exception states that countries may keep sovereignty on the issue of arms production and sales as long as policies do not pose a barrier to the free market and trade of civil products. In this way, the security exception is a double-edged sword. It leads to more subsidies for defence industries in the producer countries as they retain the freedom to subsidise national weapon manufacturers. On the other hand, it limits controls as controls may not hamper the free flow of trade and controls always affect the free flow of goods. This security exception clause can thus easily be used to downplay requests for stronger scrutiny of arms exports.
For the defence industry, the clause is perfect. Investments in civil aeronautics have their limits, but investments in military applications are free of those barriers. If a country wants to support its aeronautics, therefore, it can do so by spending the money destined for the military part which can spill over to the civil industry as long as it is not identifiable. This is what is happening in practice. In reaction to the Boeing-Airbus case, a special WTO solicitor for the White House in Geneva recalls an earlier WTO case in which Canada was ordered to withdraw its subsidies from the Canadian builder of aircraft Bombardier (2). The Canadian government responded by helping the military division of Bombardier. “The fact that no foreign company was able to bid on the contract would be open to challenge under international trade rules. Because the contract was for military training services, not civilian services, the Canadian government is able to invoke the security exception to shield the deal from the WTO’s scrutiny. Meanwhile, Bombardier is able to use guaranteed profits from the defence contract to offset an often unpredictable civilian aircraft market,’ a Canadian peace researcher explained (3).
This security exception is also to be found on the last pages of the draft European Constitution. It states, “any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes” (4). This is a text similar to those in the WTO agreements, even though a constitution is not a trade agreement. It is only one of the examples highlighting the neo-liberal programme underpinning the draft European Constitution. It does little to protect the rights of the citizens of Europe, let alone in the world. What is protected, in this case, are the interests of the defence industries and national armies. Moreover, this draft constitution contradicts efforts made since 1991 to develop an ethical arms export policy through the establishment of the European Union Code of Conduct on arms exports. It now gives national capitals a free hand on the issue of weapon production and exports, and no limits at all on arms exports.
2. Viktor Frölke, `Beide hebben schuld’ [‘Both are guilty’], NRC-Handelsblad (Dutch liberal daily), October 7, 2004.
3. See e.g.: Steven Staples, ‘Globalization and Canada’s Arms Industry,’ Published in Peace and Environment News – July-August 2002. Ottawa.
4. See art III-436 1.b.