Whiff of power politics hangs over China Airlines’ Airbus purchase

By Peter Chapman

Date: 29/01/04

LO AND behold, Taiwan's largest carrier, China Airlines, has just exercised options to buy two more EU-built Airbus A330-300 passenger planes in a deal worth at least €200 million.

That's great news for the folks down near Toulouse, who always enjoy pipping their Boeing rivals to the post in the race for a new order.

But was this the result of a solid marketing of excellent European aircraft to appreciative buyers? Or was it yet another quid-pro-quo in the complex world of aero-politics?

It's quite possibly the former. Only a few top people in Taipei, Brussels and Toulouse will ever really know.

But you don't have to be Sherlock Holmes to smell a rat. Last August, the European Commission reacted furiously to reports that American engine supplier General Electric (GE) was the victor in a €600 million contracts battle. The fact that Pratt & Whitney, another US firm, had also been overlooked in the deal was not deemed to be a factor. The insinuation was clear. China Airlines, owned by the government, had bowed to strong political pressure from Washington to buy American - despite a competitive offer from British giant Rolls-Royce for its Trent engines.

Moreover, officials pointed out that the GE engines were not even approved for use on China Airlines' new Airbus A330-300s - acquired after another bidding war, which resulted in a 'diplomatic' split between 12 wide-bodied Airbus A330-300s and six Boeing 747 jumbo jets.

David Tawei Lee, Taipei's representative to the European Union, told this paper the engine deal was based entirely on sound economic sense.

General Electric engines are already used by China Airlines, so maintenance - a crucial factor in engine deals - would be far easier, and cheaper.

Indeed, Lee added, China Airlines is soon to be privatized, and must be seen by investors to be buying the best-value-for-money equipment.

But European Voice can reveal that Trade Commissioner Pascal Lamy was desperately keen to publicize his disquiet over the GE engines purchase, despite the fact that many reporters were on holiday during the EU institutions' traditional August break.

In fact, he was so keen for the story to come out that journalists were actually approached by the EU's senior spin masters to ask a question on the issue.

Commission duty spokesman Michael Mann told reporters the EU executive was seeking clarification on the engines deal, adding that the decision could "have a major impact on relations between the EU and Taiwan". Strong words. Nevertheless, it wasn't the most auspicious way to get the EU's brand new mission to Taipei up and running, admits one European country's 'diplomat' to Taiwan.

Arancha Gonzalez, spokeswoman for Lamy, said "nothing has happened" since the Commission issued its rebuke - if you ignore last week's announcement that China Airlines was buying more Airbuses. But she denied the Commission was guilty of putting undue pressure on Taipei.

"I don't think it was an overreaction. We have showed our disappointment to them. We can express that in several ways. We expressed it in a way that is visible."

Our Taipei source, speaking on condition of anonymity, is convinced the EU was right to suspect that the engine deal did not stand or fall on purely commercial grounds. "When the announcement was made, the prime minister [Yu Shyi-kun] promised that the EU would be luckier next time. What does that tell you?" he asked.

Of course Taiwan is now part of the World Trade Organization. The regulations mean it cannot bend the rules to try to keep both its friends in the US and EU happy. But should it be pilloried and threatened for doing so? The tiny isle's supporters give an emphatic 'no'.

On one hand, America, with its military might, is keeping the peace in the Taiwan straits. Taiwan is keen for a free trade agreement with Washington. On the other hand, the EU is one of its main export markets, and the world's other main democratic bloc. Yet, as an editorial in the Taipei Times put it last year: "Taiwan's real sin is being wealthy and yet politically powerless - making it especially vulnerable to political pressure. The sad thing is that certain foreign powers know only too well about how to prey on this vulnerability."

Welcome to the messy world of trade policy.

Taiwan's largest carrier, China Airlines, is to buy two more Airbus A330-300 passenger planes in a deal worth at least €200 million.

http://ec.europa.eu/comm/external_relations/taiwan/intro/index.htm http://ec.europa.eu/comm/external_relations/taiwan/intro/index.htm

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