OTTAWA – The U.S. Department of Commerce has clobbered aerospace giant Bombardier with a hefty 219 per cent countervailing duty on the sale of its CS100 commercial jets to a U.S. airline following a trade complaint from an American rival.
The department ruled that Bombardier benefited from improper government subsidies, a finding that deals a blow to the Montreal-based company’s chances in its ongoing dispute with U.S. rival Boeing.
Canadian Foreign Affairs Minister Chrystia Freeland on Tuesday the import duty proposed by the United States on Bombardier Inc’s CSeries is “clearly aimed at eliminating” the narrowbody jets from the U.S. market.
Boeing, which had complained that Bombardier inked a deal with Delta Air Lines for up to 125 of the jets by offering the planes at below-market price, wasted no time Tuesday in declaring victory.
“Subsidies enabled Bombardier to dump its product into the U.S. market, harming aerospace workers in the United States and throughout Boeing’s global supply chain,” the company said in a statement.
The dispute is not about limiting innovation or competition, it continued, but rather “has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements.”
The financial penalties aren’t officially due until Bombardier delivers the first CS100 to Delta some time in the spring.
The key will be whether U.S. officials find that the deal between Bombardier and Delta actually hurt Boeing’s business, an issue that’s not expected to yield a finding for at least six months.
But today’s ruling does give Boeing momentum as the dispute drags on, and more leverage in any future talks between the Trudeau government and Boeing to reach a negotiated settlement.
Tuesday’s ruling was a stunning turn in the dispute, as Boeing had been asking for an 80 per cent duty.
The list price for the planes is around $6 billion. But the actual amount of money involved in the deal has not been made public, and Boeing has alleged that it is much less.
The case has major implications for Bombardier as it could not only endanger its deal with Delta, but also hinder future sales in the U.S. and hurt those Canadian aerospace companies that work with Bombardier.
Speaking before the ruling, Prime Minister Justin Trudeau promised to continue to stand with Bombardier and Canada’s aerospace industry. He also once again threatened to cut government ties with Boeing.
“Certainly we won’t deal with a company that’s attacking us and attacking thousands of Canadian jobs,” Trudeau said outside the House of Commons.
With one preliminary ruling out of the way, the Commerce Department will now turn its attention to whether Bombardier “dumped” its CS100s into the U.S. market by selling them below cost.
That finding is scheduled on Oct. 4, but could be delayed.
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But the real question is whether the deal between Bombardier and Delta hurt Boeing. That question is being tackled by the U.S. International Trade Commission, whose ruling likely won’t come out until spring.
The commission’s ruling will be the key to whether any duties slapped on the CS100s become permanent, or whether the case is dismissed, all duties paid are refunded and the Bombardier-Delta deal can go ahead as planned.
Even then, however, either side can appeal the entire case to the U.S. Court of International Trade, bring it before NAFTA dispute bodies, or even take the matter to the World Trade Organization.
That could not only drag the case out, but also leave a cloud of uncertainty hovering over Bombardier, and affect its ability to sell more planes into the U.S. market or overseas.
Quebec Finance Minister Carlos Leitao, whose government invested US$1 billion for a 49.5 per cent stake in the CSeries commercial jet program last year, said he was confident that Bombardier would beat Boeing.
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But he tempered his optimism by noting that it could take a long time to resolve the case, which Leitao said could hurt Bombardier – and which is why Quebec will continue to support the company.
“At the end of the day, as often happens in this type of dispute, the Canadian side will win,” he told The Canadian Press in New York. “Now that day could be a very long day, so that’s where the risks come from.”
It was the second bit of bad news for Bombardier on Tuesday, after two European railway manufacturers announced they were merging and would present a united front against the Montreal-based company.
But there was also a glimmer of good news, after a senior Bombardier official said the firm was hoping to close several deals with Chinese airlines.