U.S. Won’t Block McDonnell-Taiwanese Deal : Aerospace: Critics fear that sale of 40% of the firm’s airliner business could open the door to foreign subsidies and technology transfers.

A Commerce Department official said Thursday that the government does not intend to block a proposed Taiwanese investment in McDonnell Douglas Corp., despite concerns that the deal could open the door to foreign subsidies and transfers of commercial and military technology.

Commerce Undersecretary J. Michael Farren said that the Bush Administration has no plans to prevent the sale of 40% of McDonnell Douglas’ commercial airliner business for $2 billion to a group led by Taiwan Aerospace Corp., which is partly owned by the government of Taiwan.

Farren told members of the Joint Economic Committee of Congress that the Administration considers the proposed sale to be a largely private transaction beyond the purview of government intervention or control.

Nevertheless, he assured lawmakers that he is pursuing informal discussions with industry experts and the government of Taiwan to preclude any national security problems or violations of international trade laws.

Critics of the deal, including rival Boeing Co., pressed the Administration to do more, arguing that McDonnell will have to rely on the government of Taiwan to obtain funds to build a new wide-body jetliner expected to cost as much as $10 billion.

Such financing, they contend, would represent a blatantly unfair trading practice as well as a direct subsidy of an American business concern by a foreign government. It would also leave Boeing at a competitive disadvantage, the critics charged.

Sen. Jeff Bingaman (D-N.M.) said that the transaction could “doom” America’s leadership position in the aerospace industry, which generates $100 billion in sales annually and a $30-billion trade surplus for the United States.

McDonnell proposed the deal with the Taiwanese group last November to raise money for development of the MD-12, a wide-body airliner that will compete with a similar model from Europe’s heavily subsidized Airbus Industrie. McDonnell also hopes to enhance its access to Asian markets by teaming up with local investors.

The company has disclosed that roughly three-quarters of the $2 billion it would receive from the Taiwanese investors would be used to retire existing debt, leaving only $500 million to invest directly in development of the new jumbo jet.

Although McDonnell had trouble raising private investment capital before turning to Taiwan, company executive John Wolf told the committee that future capital investment would be sought from the private sector and not the Taiwanese government.

Wolf said that raising private capital to complete the MD-12 would be possible because the Taiwan deal would leave the company with “zero debt” and a “strong balance sheet.”

Committee members accused the Administration of ignoring the serious implications of a deal that cannot legitimately be considered private because it includes a foreign government “on one side of the bargaining table.”

“I doubt that this is a free-market, legitimate venture,” said Sen. Slade Gorton (R-Wash.). “We may be encouraging an Asian Airbus.”

Shortly after the proposed sale was unveiled, 30 senators signed a letter to Bush calling for a review of the deal’s economic and national security impact.