Bombardier scores big win over Boeing in U.S.-Canada trade dispute

by David J. Lynch & Aaron Gregg (feat. Eric Miller)

The Washington Post
January 26, 2018

An independent commission on Friday rejected proposed tariffs on imported Canadian aircraft, a reminder of the limits on President Trump’s authority to reshape U.S. trading relationships with the world.

By a 4-0 vote, the International Trade Commission ruled that Boeing, the Chicago-based aircraft maker, had not been injured by multibillion-dollar Canadian subsidies for Bombardier aircraft. As a result, 300 percent tariffs that the Commerce Department had suggested to counter those subsidies will not take effect.

Still, the surprise verdict by a panel of nonpartisan government experts is likely to have little impact on the president’s plans to erect other barriers against what he regards as unfair trade.

“This decision should be viewed as limited to an extraordinary set of facts,” said Dan Ujczo, a trade attorney with Dickinson Wright. “It in no way should be interpreted as a broad-scale limitation on the Trump administration’s trade enforcement authority.”

In Montreal, where negotiators are meeting to overhaul the North American Free Trade Agreement between the United States, Canada and Mexico, the decision was welcomed. Canadian officials had bitterly objected last year as the U.S. moved toward effectively barring Bombardier from the lucrative American market.

“This means a major irritant between the two countries disappears, and having that irritant disappear becomes a very positive thing for reaching a NAFTA deal,” said Eric Miller, president of the Rideau Potomac Strategy Group.

The ITC commissioners, who are appointed for nine-year terms designed to insulate them from political influence, preside over a fact-heavy, technocratic process.

The president exercises more direct control over other trade remedies, such as the “safeguard” tariffs he imposed this week on imported solar panels and washing machines, as well as potential actions against China for stealing trade secrets.

“He’s got an independent hand on all of those,” said Edward Alden, a trade policy expert at the Council on Foreign Relations.

This week’s tariffs on solar panels and washing machines also had immediate economic and diplomatic implications, with at least one importer promising to raise prices and the South Korean government filing a complaint at the World Trade Organization.

The ITC ruling on Bombardier comes as a growing number of U.S. companies file complaints against overseas rivals, hoping to win support from the Trump administration, which has vowed to crack down on trade cheaters. Last year, the number of anti-dumping and countervailing duty investigations launched by the Commerce Department rose more than 60 percent.

But the unanimous ITC decision, coming after preliminary rulings that pointed to steep tariffs, caught many analysts by surprise. The Commerce Department last year issued preliminary findings that the governments of Canada and the province of Quebec had unfairly subsidized development of Bombardier’s medium-range C Series aircraft, which U.S. officials said were then sold in the U.S. below their cost of production.

Commerce Department officials proposed combined duties of up to 300 percent on the Canadian jets. None of the planes had yet been delivered to U.S. airlines, although Delta inked a $5 billion deal for them in 2016.

Analysts said Boeing’s bid for help ultimatelyfell short because the company overreached, asserting an unsupported injury claim. The aircraft maker did not compete directly with the single-aisle Bombardier aircraft and had not bid for the Delta order at the heart of the case.

“This was always a stretch in terms of Boeing’s claims,” said Alden. “It was obvious Boeing was trying to stretch the definition of injury pretty significantly. . . . There were a lot of things here that were pretty far outside the norm.”

The ruling leaves Boeing in a difficult spot. The Canadian government has already retaliated against the aircraft maker for its petition for government protection.

Late last year, Canadian officials made good on an earlier threat to cancel a proposed purchase of F/A-18 Super Hornet fighter planes, dealing a blow to Boeing’s defense contracting business.

Now, Boeing finds itself in a situation in which it has alienated a key customer for its defense business and irked a key commercial customer in Delta Air Lines, while failing to block the U.S. expansion plans of its Canadian rival.

Boeing officials expressed “disappointment” with the ruling, while Bombardier applauded it.

“Today’s decision is a victory for innovation, competition, and the rule of law,” Bombardier said in a statement. “It is also a victory for U.S. airlines and the U.S. traveling public.”

Likewise, Canadian government officials, business groups and labor leaders welcomed the unexpected verdict.

“I’m thrilled that common sense has finally won out and that these ridiculous tariffs have been tossed,” said Unifor National President Jerry Dias. “The USITC ruling means that good-paying Bombardier jobs can stay in Canada.”

The dispute took a twist in mid-October when Bombardier agreed to sell the C Series plane to Airbus, a deep-pocketed European aerospace giant that is Boeing’s closest competitor.

The companies promised to shift future production of the plane from Canada to Mobile, Ala. Airbus executives argued that moving production in that way should allow them to avoid the tariff.

“The fact is that when you produce an aircraft in the U.S., it’s not subject to any U.S. import tariff rules,” Bombardier President Alain Bellemare said in an October news conference.

In its arguments before the trade commission, Boeing’s lawyers cast doubt on the idea that Airbus would set up a production line in Alabama, arguing that the company could change its plans.

“There is no joint venture. Period. And there may never be one,” Boeing’s lawyers argued in the company’s most recent official filing with the commission. “The parties have not broken ground on anything in Mobile related to the joint venture, let alone a full C Series production facility.”

Boeing later revealed in December that it is pursuing a joint venture with Brazilian aerospace firm Embraer, a close competitor with Bombardier in the market for smaller commercial jets. The two companies have not announced a finalized deal yet.