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.
Notes:
1. Position paper 'Trade
issues' at www.aecma.org
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.
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.