Index AIA Testifies on Trade with China Washington Watch: Trade Promotion Authority Test Looms when Congress Reconvenes After Recess "Team International" Unveiled by DSCA The President's WASHINGTON PIPELINE: More at Stake in Competitiveness than the Sale of Aerospace Products Aviation Community Pushes Airport Capacity Issues ICAO Will Focus on Growth and Safe Flight Operations Defense Department Proposes New Base Closure Process AIA Releases White Paper on Radio Spectrum Issue Two New Members Added to AIA Roster A•E•R•O•I•N•D•I•C•A•T•O•R•S: Unfilled Orders Backlog Rises to Highest Level in Nine Years U.S. Aerospace Industry Employment in 2001 Has Its Ups and Downs House Committee Marks Up Export Administration Measure

AIA Testifies on Trade with China

AIA President John Douglass testified before the U.S.-China Security Review Commission last month, focusing on the fact that the U.S. aerospace industry considers China a priority market for commercial aerospace business.

Douglass remarked that the U.S. aerospace industry last year had a $1.7 billion trade surplus with China and predicted that in the next 20 years China will buy $144 billion worth of commercial airplanes. He underscored this information by stating that the U.S. aerospace industry must take advantage of this market to prevent loss of jobs to competitors overseas.

The growing need for communications within China and by China with the rest of the world, Douglass also stated, has spurred the demand for satellites in the region. AIA expects that China will rely heavily on satellite-based systems for telecommunications, Internet, and television requirements. The Chinese plan on purchasing $3 billion worth of communications satellites in the next decade, he said.

More than 20,000 U.S. jobs can be attributed directly to aerospace sales to China, and that number could increase significantly if U.S. manufacturers capture more sales in the future, Douglass maintained. Moreover, there are significant indirect economic benefits that will emerge as China is brought into the world economy with its entry into the World Trade Organization.

As international business, economic trade, and tourism flow in and out of China, airline traffic to and from it and other Asian countries will expand. Furthermore, estimates predict that by 2019 there will be approximately 350 weekly flights between China and North America, helping U.S. domestic airlines increase their business and, in turn, prompting the purchase of more aircraft.

The U.S.-China Security Review Commission, created in the National Defense Authorization Act signed into law last year, is directed to study, investigate, assess, and report on the economic and security implications of the bilateral economic relationship between the United States and China.

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One of the Bush Administration's priorities — obtaining Trade Promotion Authority (TPA) — will almost certainly be tested in Congress soon after the August recess.

Formally known as "fast track" authority, a renewed TPA would give the president power to bargain, amend, and adjust trade-opening agreements without congressional interference. Congress would still be required to reject or approve a trade agreement but could not amend one after it was negotiated by the administration.

AIA has been working with other industry associations to inform members of Congress that TPA is essential in order to credibly negotiate multilateral, regional, or bilateral trade agreements. It is crucial that Congress renew TPA (expired since 1994), before the World Trade Organization meets in November. Many in Congress would like to attach workers’ rights and environmental protections to TPA and are threatening its passage if these issues are not addressed.

The U.S. aerospace industry depends on agreed-upon trade rules in order to limit other governments’ ability to subsidize their aerospace industries. AIA believes that TPA is vital in order to ensure that any new round of WTO trade negotiations will address the fact that foreign aerospace subsidies must be subject to the WTO agreement on subsidies and countervailing measures.

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After a three-year study, the Defense Security Cooperation Agency has signed a memorandum and guidelines to the Defense Department and military services for a "Team International" approach in negotiating and implementing sales of defense products to foreign countries.

One issue has been how to bring together the U.S. government, industry, and a foreign customer to examine how the customer’s requirements might be met by a U.S. product.

For major potential sales under the new guidelines, a team of U.S. government personnel from the relevant U.S. embassy, DoD, the military services, U.S. industry, and the foreign customer would examine:

AIA strongly supports this concept of teaming by the U.S. government, industry, and the foreign customer at all stages of the defense sales process.

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I had the opportunity recently to present testimony to the House Transportation and Infrastructure Subcommittee on Aviation on the competitiveness of the U.S. aircraft manufacturing industry. Taken at face value, the aerospace industry’s desire for unfettered access to the global marketplace might seem self-serving.

But we have at stake far more than the sale of aerospace products. Should we fail to gain greater access to the global marketplace and thereby lose market share to our competitors overseas, we place the nation’s economy and national security at risk.

In the three years since I began my tenure as head of the Aerospace Industries Association, I have spoken to numerous organizations about how our own national policies create obstacles to our industry’s competitiveness in the global marketplace. One of the most significant is our cumbersome export licensing process.

Developed during the Cold War, the U.S. export control system has become outdated. Many of the items we once sought to control have become available from foreign sources.

The aerospace industry is asking for the system to be administered efficiently and that it control only the flow of military technologies to countries posing a realistic national security concern. We are also interested in correcting a system that is so burdensome and complex that it discourages U.S. and foreign companies that are primarily producing commercial products from dealing with the U.S. aerospace industry or with our government agencies.

To this end, AIA urges the passage of an updated Export Administration Act, which would have direct impact on dual-use technologies that have application in both commercial and military products.

Another trade policy issue of central importance to our industry is support for the Export-Import Bank. In light of the current negative trend in exports, the proposal to cut funding for the bank is particularly ill-timed because it could further erode U.S. aerospace exports.

AIA has asked Congress to restore funding to the Ex-Im Bank. It is the only institution we have to counter the well-funded foreign export credit agencies used by foreign competitors. We are very pleased with the action of the House Appropriations Committee in partially restoring funds for the bank for FY 2002, and we are asking that the appropriation be restored to the level appropriated by Congress for 2001.

I also spoke to the subcommittee about the dramatic decline in federal spending on break-though, pre-competitive aeronautics research. Federal investment could prove critical to the aerospace industry considering our European competitors have proposed an investment of $90 billion over the next 20 years.

Finally, I believe that the Commission on the Future of the U.S. Aerospace Industry will be the ideal forum for studying and making recommendations on the role and impact of the federal government on our industry. I urged the subcommittee to engage with the commission as soon as it is formed so that all the issues discussed at the hearing will be considered in a comprehensive and integrated manner across the boundaries of the federal agencies.

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At the 2001 Aviation Capacity Summit AIA joined 12 other aviation organizations in urging the Bush Administration to make aviation capacity enhancements a top national priority.

Cosigning a letter to President Bush with AIA President John Douglass were association presidents representing general, business, regional and commercial aviation manufacturers, operators, pilots, airports, and air traffic controllers. In addition to continuation of AIR-21 funding levels, the letter addressed the importance of adequate, long-term funding of NASA aeronautics programs.

Hosted by the National Air Traffic Controllers Association and the Air Transport Association, summit participants discussed the need to ensure that America’s air transport system has the airport capacity, modern air traffic management technology and procedures, and long-term investment necessary to foster a safe and efficient national air transportation system.

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The International Civil Aviation Organization (ICAO) will meet later this month in Montreal to resolve outstanding issues facing international aviation.

The ICAO Assembly meets once every three years to set its work program and update its standards and recommended practices. In many areas more emphasis is being placed on the special needs of developing countries.

Issues to be addressed at the 33rd meeting of the ICAO assembly are aimed at ensuring the continued growth and safe operation of international aviation. A key agenda item will be the Resolution on Environmental Protection. Also considered will be:

Progress in establishing the legal framework for air traffic systems, including global navigation satellite systems, will be reported. The status of ICAO’s cooperative efforts with the International Institute for the Unification of Private Law to develop legal instruments to facilitate asset-based financing of aircraft equipment will also be reviewed. This is in preparation for a joint meeting in November to finalize the effort to reduce property risk by lowering aircraft equipment financing costs.

AIA will participate in the assembly as the Official Observer for the International Coordinating Council of Aerospace Industries Associations (ICCAIA), the officially recognized ICAO manufacturer observer organization. Other members of the delegation will be drawn from ICCAIA standing committees and member association technical experts.

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The Defense Department last month presented its legislative proposal for a new round of base closures. DoD’s plan builds on the Defense Base Closure and Realignment Act of 1990 and is called the Efficient Facilities Initiative (EFI) of 2001.

AIA strongly supports further rounds of base closures. By DoD’s own estimates, there is 20 to 25 percent excess defense infrastructure. The elimination of excess or underutilized facilities would save substantial resources, which can then be used to fund more urgent priorities.

Senate Armed Services Committee Chairman Carl Levin (D-Mich.) joined Senator John McCain (R-Ariz.) earlier this year in introducing their own base closure bill. The bill, S. 397 has 10 co-sponsors and is expected to be considered soon by the Senate Armed Services Committee.

While there are several differences between S. 397 and the proposed DoD EFI legislation, they are similar enough in intent that compromise should be possible.

DoD’s proposal is a positive signal that the administration is willing to address the often emotional issue of base closure legislation this year.

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ISSUE: The cellular telephone industry is promoting legislation that would take critical radio spectrum away from DoD and assign it to third-generation (3G) wireless services.

These new wireless services promise to deliver broadband access to telephone handsets (higher speed web-browsing, video, music, e-mail, etc.).

Although 3G promises much, foreign companies are suffering from the enormous debt incurred from spectrum auctions, the high cost of building new cell towers, and lack of consumer interest.

BACKGROUND: The spectrum being sought by cellular interests (1755-1850 MHz) is critical to our national security and to the security of our troops abroad.

Even if cellular companies could demonstrate that national security operations must be moved to accommodate them, such a move would not be feasible until 2017 (due in large part to the lifetime of in-orbit assets) and would cause both industry and government to lose hundreds of millions of dollars invested in current systems.

Several DoD operations would be affected by the proposed move. These include space telemetry, tracking and command; tactical radio networks; air combat training; precision guided munitions; and fixed point-to-point equipment.

While it has been proposed that DoD simply move these operations to other spectrum, such alternate spectrum has not been identified. Comparable spectrum must be identified if DoD is forced to relocate.

To date, the wireless industry has neither demonstrated why the DoD spectrum is unique in fulfilling 3G spectrum "requirements" nor identified the alternate spectrum to which critical national security operations could be moved.

It has been suggested that DoD must vacate its spectrum so the United States can be harmonized with the rest of the world. In fact, no spectrum band is used worldwide for 3G.

European firms do not use 1755-1850 MHz for 3G services. They use it for 2G (second generation services) and other bands for 3G. Africa has stated intentions of using another, lower band for 3G.

DoD, on the other hand, has achieved near world-wide harmonization of the 1755-1850 MHz band through a wide range of bilateral agreements. Were DoD forced to move to other spectrum, it would be difficult, if not impossible, to replicate these agreements in new bands.

Many look at this simply as a financial issue — if cellular companies foot the bill, DoD should agree to move. It is not clear, however, whether proceeds from spectrum auctions could cover the true costs of relocating DoD operations. And there is no guarantee the funds would actually be used for new systems.

The 1999 National Defense Authorization Act (NDAA 1999) requires federal agencies that are required to relocate or modify their radio communications systems to accommodate private sector use of certain spectrum be reimbursed for the cost associated with such relocation or modification. NDAA 2000 adds specific additional requirements stating that where DoD is the primary user of spectrum targeted for reallocation to the private sector, alternative spectrum with comparable technical characteristics to restore essential military capability must be identified and made available for DoD use. The alternative spectrum must be certified by the House and Senate, the Chairman of the Joint Chiefs of Staff, and the secretaries of Commerce and Defense.

RECOMMENDATION: Support defense legislation that protects DoD’s current and future national security operations in the 1755-1850 MHz band. Comparable spectrum must be identified before displacement to justify a unique need for DoD spectrum.

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AIA’s membership list has grown again with the addition of two more aerospace manufacturing companies.

One of the new members is Dassault Falcon Jet Corporation, a subsidiary of Dassault Aviation, one of Europe’s largest aerospace companies.

Dassault Falcon Jet sells and supports the Falcon family of business jets throughout North and South America and the Pacific Rim countries of Asia, including the People’s Republic of China.

The company, headquartered at Teterboro Airport in New Jersey, employs 2,000 U.S. workers. Dassault has an aircraft completion and service center in Little Rock, Ark., and a new maintenance and service center in Wilmington, Del.

The Falcon line is composed of five business jets — the Falcon 50EX, Falcon 900C, Falcon 900EX, Falcon 2000, and, the newest model, the Falcon 2000EX.

Some 1,400 Falcons have been delivered to customers in 70 countries since the first Falcon flew in 1963. The parent company, Paris-based Dassault Aviation, also manufactures the Mirage and Rafael jet fighters.

W.L. Gore & Associates is another new member of AIA.

Best known for its GORE-TEX fabrics, the company began in 1958 when Bill and Vieve Gore set out to explore opportunities for fluorocarbon polymers, especially polytetrafluoroethylene (PTFE).

Within 10 years Gore wire and cables landed on the moon, operations began in Scotland and Germany, and a venture partnership took root in Japan.

Today, W.L. Gore has 6,000 associates in 45 locations around the world, including technology and manufacturing sites in the United States, Europe, and Asia.

The firm also makes insulated wire and cable and air filters.

It is well known for its lattice management style in which bosses are "sponsors" and employees are "associates" who work under no fixed authority in a workplace in which consensus determines objectives.

The company has been named to the list of the "100 Best Companies to Work for in America" for five consecutive years.

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Aerospace industry orders and shipments in the first quarter of 2000 rose nine and 12 percent, respectively, over year-earlier levels.

New orders received during the quarter totaled $36.7 billion while shipments totaled $33.4 billion. As a consequence, the unfilled order backlog rose $3.2 billion to $231 billion — the highest level in nine years. For more information on industry orders, shipments, backlog, and inventories, see Series 26 at www.aia-aerospace.org/stats/aero_stats/aero_stats.cfm.

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Recently released figures show aerospace industry employment increased 7,000 to 798,000 since January. More than half of those gains came from the aircraft-manufacturing sector.

Still, total employment in June 2001 declined 6,000 from year-ago levels. These losses were concentrated in the missiles and spacecraft manufacturing sector.

Despite a slight overall decline in aircraft manufacturing employment since June 2000, aircraft production worker employment grew 2,100 and the aircraft parts manufacturing work force grew 5,000, perhaps demonstrating statistically the trend toward outsourcing and management’s ability to hold employment in check while increasing production.

For more information on industry employment, see Group II at:

www.aia-aerospace.org/stats/aero_stats/aero_stats.cfm.

Industry Employment (in thousands)	June 2001	Jan 2001	June 2000
All Workers:
Aerospace	798	791	804
Aircraft & Parts	465.9	462.3	466.5
Aircraft	229.1	228.9	233.5
Engines & Engine Parts	101.4	100.2	102.6
Aircraft Parts	135.4	133.2	130.4
Missiles & Spacecraft	83.6	83.0	87.6
Other Related	248	246	250
Production Workers:
Aircraft & Parts	222.7	220.7	220.6

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The House International Relations Committee marked up H.R. 2581, a version of the Export Administration Act (EAA) introduced by Rep. Benjamin Gilman (R-N.Y.).

Representatives Robert Menendez (D-N.J.) and David Dreier (R-Calif.) each introduced bills identical to S. 149, the EAA passed overwhelmingly by the Senate Banking Committee and supported by the administration.

The House International Relations Committee, however, chose to use H.R. 2581 as their base bill. Before markup the primary difference between H.R. 2581 and S. 149 was a controversial section in H.R. 2581 amending the North Korea Threat Reduction Act of 1999.

During markup, Chairman Henry Hyde (R-Ill.) and Ranking Minority Member Tom Lantos (D-Calif.) put forth several amendments, many technical in nature. While the administration was not allowed to make its views on these amendments known during the mark up, the committee agreed to most of them.

Some of the Hyde-Lantos technical amendments might instead be substantive in nature and detrimental to the EAA legislation. However, AIA supports an amendment incorporating the text of H.R. 1707, the Satellite Trade and Security Act of 2001.

The amendment offered by Reps. Howard Berman (D-Calif.) and Dana Rohrabacher (R-Calif.), the prime sponsors of H.R. 1707, changes the jurisdiction over the exports of satellites and related components from the State Department to the Commerce Department. It leaves intact the successful national security mechanisms put in place by Congress in 1998.

The House Armed Services Committee will now consider H.R. 2581; S. 149 is scheduled to be one of the first orders of business when the Senate returns from the August recess.

AIA continues to strongly support the Berman-Rohrabacher satellite language and ask that some of the Hyde-Lantos amendments be either modified or removed during the remainder of the legislative process.

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