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SUMMARY 10 KEY CHALLENGES AND RECOMMENDATIONS Growing Involvement of Governments in Trade The growing involvement of governments in both manufacture and sale of aircraft on the one hand and purchase on the other has important implications for competition and trade. The calculation of costs and benefits by governments is based on broader and more diffuse criteria than is possible for a private company: the time periods for judging results and paybacks are longer, and investments can be sustained for longer periods of time without necessarily ever achieving commercial success. In this context, the several agreements establishing rules for trade in civil aircraft assume great significance, especially regarding subsidies. This issue is especially complex in the case of aircraft because virtually every developed country, including the United States, has a long history of close government- industry relationships. Despite their limitations, negotiations under the terms of previously agreed trade standards are the only generally accepted vehicle for addressing problems of trade policy. The United States has little choice except to pursue them vigorously. Sales of aircraft are particularly difficult to deal with in this framework because purchases tend to be made infrequently, individual orders are large, and obtaining initial orders gives high leverage for follow-on orders. Three aspects of trade administration warrant attention: 1. Adequacy of resources and political resolve to support monitoring of trade behavior and to support negotiations in specific transactions, when it is called for, are crucial. Recent steps to strengthen U.S. capability are highly commendable, and it is important that they be sustained in the future. 2. Effective government-industry interaction with respect to the smaller transactions characteristic of sales of helicopters and regional aircraft is increasingly important. Neither the government nor the companies involved have had much experience in such relationships, and it is important for them to be developed. 3. A more flexible and timely response is needed for government action to counteract trade arrangements that constitute unfair practices. Options could include temporary measures such as denial of investment tax credit on the non-U.S. labor content of imported aircraft, closer coordination of military development and industrial need, and more aggressive export finance policies. These measures must be invoked with great care because they invite retaliation, typically where other governments feel they have greatest leverage (not necessarily in the same industry), and they also risk escalation into destructive trade wars.
