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How NAFTA’s Chapter 19 could save Bombardier’s C Series

Bombardier has lost another round in its fight against Boeing and the U.S. government.

And it will almost certainly lose every future round until the case reaches its inevitable conclusion with a final ruling next year – with hefty duties confirmed on every Bombardier C Series aircraft sold in the United States.

That's just the way it is with anti-dumping and subsidy cases. The deck is heavily stacked against a foreign company such as Bombardier when it's going up against a politically powerful domestic industry.

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And few can rival Boeing's clout and influence, particularly in the current protectionist trade climate in Washington.

It's worth remembering that Donald Trump's first visit to a factory as U.S. President was to the Boeing's Dreamliner assembly plant in Charleston, S.C., where he proclaimed: "We are going to fight for every last American job."

Tuesday's preliminary duties ruling by the U.S. Commerce Department is a vivid reminder that NAFTA's Chapter 19 is worth fighting for. That's the section of the North American free-trade agreement that allows Canada, the United States and Mexico to challenge subsidy or dumping decisions before a binding panel if they aren't convinced another country has fairly applied their own trade laws.

And on its current course, a Chapter 19 challenge might be Bombardier's only hope of coming out on top in the dispute.

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Boeing alleges that the Canadian company sold 75 C Series planes to U.S.-based Delta Air Lines at "absurdly low prices," while benefiting from unfair subsidies from the Canadian, Quebec and British governments.

Bombardier sees something more sinister – an effort to kill an aircraft that challenges Boeing's core market of narrow-body transcontinental planes, such as the 737 Max. The trade case has already cast a cloud on sales of the C Series, and raised doubts about Bombardier's future in the commercial aircraft business, where subsidies and other forms of government support are the norm.

The intent of trade remedies is not to put a rival out of business.

But that is what is at stake.

Bombardier's predicament demonstrates why Chapter 19 matters, explained Toronto trade lawyer Lawrence Herman.

"It illustrates why Canada fought so hard for this system in the 1980s to have a neutral body that ensures that the laws have been correctly applied and the facts reasonably support the conclusions reached," he said.

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Chapter 19 was the proverbial line-in-the-sand for Canada in the original 1988 Canada-U.S. free-trade deal – an insurance policy against unbridled protectionism by Washington. And Ottawa fought hard for its continuation in the 1994 North American free-trade agreement.

The Trump administration has targeted Chapter 19 in the ongoing renegotiation of NAFTA. So far, however, the United States has not put a specific proposal on the table, as the third round of talks continues in Ottawa this week.

U.S. players in industries such as steel and lumber have long been suspicious of binational panels, which they regard as an infringement on the sovereignty of U.S. courts. Some have even threatened to mount a Supreme Court challenge to have Chapter 19 declared unconstitutional.

Part of the power of Chapter 19 is that panel rulings are enforceable in U.S. courts. That isn't the case for rulings by the World Trade Organization.

And it offers relatively speedy justice – a final ruling is due 315 days after a country requests a panel review. That's significantly faster than pursuing a case in the courts or at the WTO.

Chapter 19 has fallen into disuse in recent years. Canada has filed just three cases in the past decade. The United States hasn't used it against Canada since 2005.

But Mr. Trump's aggressive trade agenda could change that. Beyond Bombardier, Canada is a target of several ongoing cases involving steel, aluminum, solar panels and, of course, softwood lumber.

Canada has successfully used Chapter 19 in the past to get duties on lumber removed.

Canada is facing an administration that is bent on repatriating U.S. jobs and cutting its trade deficit by tilting the playing field in its favour and more aggressively pursuing litigation.

Now is not the time to negotiate away a valuable insurance policy.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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