Washington's top trade watchdog says U.S. aerospace companies are "threatened with material injury" by imports of Bombardier Inc.'s medium-range C Series jets and an investigation will continue into a complaint from Chicago rival Boeing Co. that the Montreal firm benefits from unfair subsidies.
The announcement on Friday from the U.S. International Trade Commission means an increasingly bitter trade dispute between Canada and the United States, which has Prime Minister Justin Trudeau's government threatening multibillion-dollar reprisals against Boeing, is not going away.
Boeing triggered the investigation with a complaint to the U.S. government that sales of Bombardier's new C Series jetliner constitute dumping into the U.S. market because the plane is subsidized by the Canadian and Quebec governments.
The U.S. Department of Commerce and the trade commission are probing the allegations.
The commission said the U.S. Department of Commerce will render a decision by July 21 on what sort of preliminary duties should be applied to Bombardier imports to counter the alleged subsidization, and it will rule by Oct. 4 on further duties to address charges that the aircraft are priced below fair-market value.
The Department of Commerce will not make a final determination on subsidies and dumping until October at the earliest. The U.S. International Trade Commission is expected to rule after that on injury.
The continuation of the Bombardier probe also suggests Boeing is so far unmoved by Canada's response and has made no visible effort to withdraw its trade complaint.
The Trudeau government last month threatened to cancel a multibillion-dollar purchase of 18 Boeing Super Hornet fighters if the United States takes damaging trade action against Bombardier as a result of the complaint.
This growing trade battle ratchets up the tension between Ottawa and Washington as the two sides gear up for NAFTA talks in mid-August, and signals Canada's willingness to stand up to President Donald Trump.
Ottawa-based trade consultant Peter Clark said he believes it is unlikely Bombardier will prevail. "I don't think Boeing will back down and I don't think the International Trade Commission is going to clear Bombardier."
He said Washington has changed the U.S. trade remedy system in recent years to favour complainants, not respondents. "The chances of a [final] injury finding are much higher than the chances of Bombardier being let off."
Relatively little evidence is required at this stage for the International Trade Commission to continue the probe, and the U.S. trade regulator had not been expected to jettison the complaint now.
"Today's preliminary decision was expected given the very low bar for Boeing in this first step of the process," Bombardier spokesman Mike Nadolski said. "Going forward, we are confident that a detailed review and analysis of the facts will demonstrate that Boeing's claim is without merit."
Bombardier stock fell nearly 7 per cent to $2.38 in late afternoon Toronto trading on Friday. It was the most-traded stock of the day, with more than 19 million shares changing hands.
Boeing spokesman Daniel Curran repeated the company's earlier statement that the dispute "is a commercial matter that Boeing is seeking to address through the normal course for resolving such issues."
He also made a pitch for the Super Hornet as the "low-risk, low-cost approach that offers all the advanced capabilities the Royal Canadian Air Force needs now and well into the future."
The investigation will add huge uncertainty to any Bombardier C Series sales campaigns in the United States, Veritas Investment Research analyst Dan Fong said. The prospects of tariffs will also change the plane's operating economics as prospective customers weigh whether the aircraft makes sense for their fleet plans, he said.
Mr. Fong believes U.S.-based airlines and fleet customers considering the C Series will either delay buying until U.S. regulators have ruled, demand tariff protection from Bombardier, or forego the C Series altogether.
Bombardier has not announced a major C Series order in more than a year.
Two industry observers privately said Boeing is digging in its heels because it allowed Europe's Airbus to gain a toe-hold in the U.S. market before it responded and does not want to make the same mistake with Bombardier. Even if the trade challenge fails, it might throw the Canadian plane maker off its game, they say.
The U.S. regulator's decision came the same day Boeing chalked up a mixed victory at the World Trade Organization, a global trade referee.
The WTO found that while the United States had failed to remove government aid programs for Boeing, as alleged in a trade complaint brought by the European Union, few of these subsidies hurt EU interests. It also said one U.S. subsidy program, a business tax rate reduction in Washington state, where Boeing builds most of its aircraft, has had "adverse effects" on EU interests.
The U.S. process for assessing whether foreign imports are hurting industry is a bifurcated system. The U.S. International Trade Commission assesses the impact of dumped and subsidized imports on domestic production, including whether they have, or may cause injury, and the Department of Commerce determines whether imports are being dumped or subsidized and by how much.
With a report from from Reuters