Trump administration punishes Bombardier with another import duty

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The Trump administration has punished Canadian plane maker Bombardier with another import duty on its high-tech C Series airliner, cranking up the pressure on Ottawa amid tense renegotiations of the North American free-trade agreement.

In a decision released Friday, the U.S. Department of Commerce ruled to slap an anti-dumping duty of nearly 80 per cent on Bombardier Inc. C Series planes imported into the United States. Boeing Co., whose lawsuit triggered a Commerce investigation into the 100– to 150-seat airliner, had demanded that amount in its initial complaint.

The penalty comes on top of a separate countervailing duty of 220 per cent imposed by the department last week. That provoked shock among political leaders in Canada and Britain because of its magnitude – far exceeding the 80 per cent Boeing Co. requested – and put the two countries on notice that the United States intends to aggressively protect its domestic aerospace industry.

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Together, the two levies more than triple the price of Bombardier C Series passenger jets shipped to the United States. If finalized, they would put the U.S. market out of reach for the plane and threaten thousands of jobs if the company isn't able to offset U.S. sales with business elsewhere.

"The United States is committed to free, fair and recriprocal trade with Canada but this is not our idea of a properly functioning trade relationship," U.S. Commerce Secretary Wilbur Ross said in a statement.

The new duty deepens the fault lines between Canada and its biggest trading partner, undermining hopes that officials will make progress on forging a new NAFTA deal. Last week's decision was among the worst such trade rulings against Canada so far and raises the spectre of a trade war, said David Madani, senior Canada economist at Capital Economics in Toronto. This week's decision makes matters worse, he said.

"This is all about politics now," Mr. Madani said, noting that every major aerospace manufacturer is backed by its home country, given the huge sums involved. "It clearly shows that the U.S. Commerce Department, and the U.S. administration more generally, has got it in for Canada."

U.S. President Donald Trump is said to covet such duties as he tries to put in place an "America first" trade strategy that aims to save manufacturing jobs. Boeing is only one of several U.S. companies that have sued foreign rivals in recent months, aligning itself with the political winds to push its own interests. On Thursday, the U.S. International Trade Commission ruled unanimously that South Korean appliance makers LG and Samsung are importing large residential washers into the United States in such increased quantities that they are a "substantial cause of serious injury" for Whirlpool Corp. and other U.S. manufacturers.

In Ottawa, Chrystia Freeland, Canada's Minister of Foreign Affairs, said she was disappointed by the decision, vowing to fight Boeing's effort to manipulate the U.S. trade remedy system to keep the C Series out of the U.S. market. "Our government will continue to vigorously defend the interests of the Canadian aerospace industry and our aerospace workers against irresponsible and protectionist trade measures," she said.

Six members of Congress representing Kansas and other states where Bombardier and its suppliers have a significant presence also weighed in. "This decision is short-sighted and threatens thousands of good jobs across the country," they said in a joint statement. "We urge the department to work with the parties to find a responsible solution."

The decision further squeezes Bombardier the company as it tries to keep interest in the C Series alive and keep its turnaround effort on track. The aircraft is the company's big bet to drive future revenue in its commercial aerospace business and getting it to market at a cost of $6-billion (U.S.) nearly bankrupted it.

Bombardier executives have said they remain confident they will win several new orders for the plane this year as sales campaigns in Asia and Africa yield results. The jetliner is widely considered a technical achievement and has won praise from airlines now flying it but Boeing, Embraer SA and other rivals are moving aggressively to stop the 100-to-150-seat plane before it wins a solid place in the international market.

The row started this past spring when American plane maker Boeing sued Bombardier for selling 75 C Series planes to Atlanta-based Delta Air Lines at what it says were "absurdly low prices" while benefiting from unfair subsidies from the Canadian, Quebec and British governments. It asked the U.S. government to impose countervailing and anti-dumping duties on the C Series to level the playing field.

Commerce's preliminary ruling on countervailing duties triggered a sharp rebuke from lawmakers on both sides of the Atlantic. Prime Minister Justin Trudeau accused Boeing of trying to put Canadians out of work and threatened to cancel a major military contract to buy 18 Boeing Super Hornet fighters. Quebec Premier Philippe Couillard said that from now on "not one bolt, not one part, not one plane" made by Boeing should be purchased in Canada until the dispute is resolved fairly. In Britain, where the C Series wings are built, Defence Minister Michael Fallon also also vowed to retaliate, though like Canada, British officials are using political back channels with the United States to try to get the lawsuit dropped.

The fight over dumping allegations has been equally acrimonious. Boeing alleges Bombardier used $2.5-billion (U.S.) in state subsidies to adopt a strategy of slashing prices on the C Series and make inroads with major U.S. airlines, even if it meant selling far below cost. Boeing says that Bombardier offered Delta the C Series for $19.6-million per plane, significantly below the $33.2-million it costs to build it.

"These duties are the consequence of a conscious decision by Bombardier to violate trade law and dump their C Series aricraft to secure a sale," Boeing said in an e-mailed statement Friday. "This dumping in our home market was not a situation Boeing could ignore, and we're now simply asking for laws already on the books to be enforced."

Bombardier denies the allegations and says Boeing's numbers are wrong. The company had steeled itself for a big anti-dumping duty, saying that the legal process Commerce is following in its investigation of the case makes "no sense."

"We strongly disagree with the Commerce Department's preliminary decision," Bombardier said Friday. "It represents an egregious overreach and misapplication of the U.S. trade laws in an apparent attempt to block the C Series aircraft from entering the U.S. market, irrespective of the negative impacts to the U.S. aerospace industry, U.S. jobs, U.S. airlines and the U.S. flying public."

The heart of the dumping question is whether Bombardier made C Series sales into the United States at less than fair value. Bombardier's position is that it has built no C Series aircraft yet to sell into the United States and made no C Series sales yet into the country (it doesn't book Delta's purchase agreement as a sale until the planes are delivered). Therefore, it says there were no sales and so the whole basis of the investigation is false and should be terminated.

Bombardier says the industry reality is that aircraft programs take billions of dollars in upfront investment and decades to generate a return. It argues that it's impossible to tally a firm production cost on the C Series until it has built enough of them to push past an early learning curve. And it argues that the plane's final price for Delta hasn't been set either because it will depend on seat configuration and other factors.

Commerce has not been receptive to those arguments, according to people familiar with the case. Bombardier says that Boeing's own program cost accounting practices – selling aircraft below production costs for years after launching a program – would fail under the investigation approach being taken by the Commerce department.

A battle has been growing over whether Bombardier has been co-operating with the Commerce probe and disclosing enough documents, with Boeing saying its rival has failed in that respect and Bombardier insisting the requests for information have been unreasonable. That led to Boeing demanding last month that an anti-dumping duty of 143 per cent be implemented – up from its earlier request of 80 per cent.

Commerce's two rulings are preliminary and it still has to issue final decisions. Observers note that the department finds in favour of U.S. complainants in a vast majority of cases and that its decisions are frequently at odds with U.S. obligations under World Trade Organization regulations.

The real test will come next year when Boeing will have to prove before the International Trade Commission (ITC) that it suffered injury at the hands of the C Series. Only then would the duties be finalized. Legal experts have said it will be difficult for Boeing to make that case given it does not make a plane comparable to the C Series and did not participate in the Delta sales competition. However, U.S. law remains stacked in favour of those making the complaint. For example, in the event ITC commissioners are split on a decision, the ruling is awarded to the complainant. And Boeing has risen to significant influence inside the Trump White House, according to CNN.

"Whatever the outcome, Bombardier, the Canadian government and the government of Quebec are likely to appeal any negative rulings to the highest levels of international trade," said Dan Fong, an analyst with Veritas Investment Research. "In the meantime, C Series sales momentum in the U.S. will be significantly curtailed, which may also put pricing pressure on Bombardier's international sales efforts."