EADS is Welcome to Compete for U.S. Defense Contracts – But First It Must Clean Up Its Act

Issue 1: Espionage, Bribery and Other Dirty Practices. 

The French government owns 15 percent of EADS, and its industrial policy includes the use of   espionage, bribery and other actions to give its favored companies an unfair advantage over American firms.

All other things being equal, were Washington now to make EADS a substantial defense supplier, the United States would be rewarding the French government for years of espionage and bribery that have inflicted billions of dollars’ of damage on the American aircraft industry and undermined  the trust they need to have to be  reliable defense partners. Arguably, by accepting stolen American industrial secrets from the French government, EADS has been complicit in such breaches of trust.

Leveling the playing field through spying on the United States. Specifically, a 1993 study by the Canadian Security Intelligence Service (CSIS)¹ found that the Airbus division of EADS depended on French espionage against U.S. and other companies to break into the American dominated aircraft-manufacturing market. The French government, it said, built Airbus on its “strategic trade policy” (STP) that utilized state intervention to subsidize domestic businesses and use dirty methods to sell them abroad.

“Proponents of economic espionage argue that the provision of valuable economic intelligence could provide strategic industries with the equivalent of a subsidy,” the Canadian report said. “The intelligence provided through economic espionage would lower the firm’s costs and thus potentially result in increases in market share and consequential benefits for the domestic economy.” According to the intelligence report, “The European consortium, Airbus, is often presented as a successful example of strategic trade policy.”²

Leveling the playing field through a policy of bribery. The EADS idea of leveling the playing field is to bribe corrupt officials into buying its planes instead of American aircraft. Airbus has been the subject of bribe-related scandals in Belgium, Canada, India, Kuwait, Switzerland and Syria.

Former CIA Director R. James Woolsey confirmed seven years ago that Airbus bribed foreign officials to buy its planes. In a Wall Street Journal op-ed addressing European complaints about the U.S.  “Echelon” electronic intelligence program, Woolsey declared that the U.S. was not spying on European companies to steal their trade secrets. “They don’t have much worth stealing. Instead we were looking for evidence of bribery.” He admitted that Echelon wasaimed partly at Airbus: “That’s right, my continental friends, we have spied on you because you bribe.”³

The former DCI added:

• “Your companies’ products are often more costly, less technologically advanced or both, than your American competitors’. As a result you bribe a lot.”

• “When we have caught you at it, we haven’t said a word to the U.S. companies in the competition. Instead we go to the government you’re bribing and tell its officials that we don’t take kindly to such corruption. They often respond by giving the most meritorious bid (sometimes American, sometimes not) all or part of the contract. This upsets you, and sometimes creates recriminations between your bribers and your bribees, and this occasionally becomes a public scandal….”

• “In spite of a few recent reforms, your governments largely still dominate your economies, so you have much greater difficulty than we at innovating, encouraging labor mobility, reducing costs, attracting capital to fast-moving young businesses and adapting quickly to changing economic circumstances. You’d rather not go through the hassle of moving toward less dirigisme. It’s so much easier to keep paying bribes….”

• “Get serious, Europeans. Stop blaming us and reform your own statist economic policies. Then your companies can become more efficient and innovative, and they won’t need to resort to bribery to compete.”

• “And then we won’t need to spy on you.”

The Economist detailed EADS/Airbus bribery in an important 2003 article, and cited a European Parliament report that confirmed the company’s corrupt practices.⁴ The United States has a tough enough time guarding against fraud and corruption among domestic suppliers, where the abuse is usually on the part of individuals and not corporate-sanctioned conduct.  We cannot afford to compound the problem by becoming dependent upon foreign governments that engage in such practices as a matter of state policy.