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02 Oct 03. The trade dispute regarding the proposal, first reported by BATTLESPACE last month, of a proposal to purchase ‘All US content’ equipment for the Pentagon, continues to grab the headlines, the FT reports. The European Commission has warned Congress that it could spark a fresh transatlantic trade dispute if it adopts draft legislation urging the Pentagon to buy all essential weapons parts from US manufacturers.

In documents obtained by the Financial Times, Brussels sets out “serious concerns” over the so-called Buy America provision and threatens legal action at the World Trade Organisation. A letter to John Warner, chairman of the Senate armed services committee, warns that “should the final bill retain WTO-incompatible provisions, the European Commission will consider the most appropriate action to take”. An explanatory note urges President George W. Bush to veto the provision, arguing it “would clearly be contrary to the letter and spirit of US commitments to the EU undertaken in the framework of the WTO”.

The paper says Brussels “reserves the right to request consultations in the WTO” – the first step in a formal legal challenge.The Commission says some sections of the bill would infringe the 1994 WTO agreement on government procurement, citing, for example, a proposal stipulating US-made machine tools in some defence contracts.

The stand-off comes at a fraught time for the transatlantic trade system. Last month, world trade talks collapsed when WTO ministers broke off a key meeting in Cancún, Mexico. Washington and Brussels have also clashed this year over issues including genetically modified crops and chemicals industry rules. The Buy America legislation, contained in the House version of the defence authorisation bill – but not in the Senate version – is the subject of tense talks between the White House and both houses of Congress, which must work out a compromise bill.

It has angered the aerospace industry on both sides of the Atlantic. In a letter sent to Mr Warner on Tuesday, the Aerospace Industry Association and the European Association of Aerospace Industries asked the provision be dropped in the Senate-House conference on the bill, saying it “would undermine cross-Atlantic defence industry relationships”.

It has also drawn fire from Donald Rumsfeld, secretary of defence, who fears the provisions might weaken the Pentagon’s ability to secure the weapons systems it wants. Mr Rumsfeld even suggested he would recommend that the president veto the bill in its present form.

A watered-down version of the provision, negotiated by Paul Wolfowitz, deputy defence secretary, and Duncan Hunter, the chairman of the House armed services committee who drafted the provision, was rejected by other government agencies last week because it did not sufficiently tone down the protectionist language of the original proposal. In a further sign that House-Senate talks may break down, nine Republican members of the House armed services committee wrote to Mr Warner yesterday saying his opposition to the Hunter-Wolfowitz compromise betrayed earlier commitments he had made to the House.

Comment: Ian Stopps, managing Director of Lockheed martin UK attempted the diplomatic approach as we reported during the Paris Air Show. Quite rightly his parent company, being lead on the JSF project requires a huge amount of international participation to make the project viable. A ‘fortress America’ approach to JSF would create huge problems. In addition the value of BAE Systems would rocket if the company was given access to the Intellectual Property of JSF to enable the company to build the aircraft in the Uk. This was alluded to by Boeing’s Finance Director in a recent interview where he cited US Intellectual Property transfer as a major block to any deal with BAE.

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