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U.S. escalates trade dispute with Canada in new tariff decision

TOP: A Boeing 737 MAX at the Paris Air Show in June. BOTTOM: Shareholders line up to view Bombardier’s CS300 aircraft last year in Quebec. (Pascal Rossignol and Christinne Muschi/Reuters)
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The Commerce Department moved Friday to impose an 80 percent tariff on Canadian jetliners, siding with U.S. manufacturer Boeing in a case that alleges Canadian jetmaker Bombardier is selling jets in the United States at unfairly low prices. The move comes on top of a separate preliminary 219 percent tariff decision announced last week.

If both decisions are confirmed by the U.S. International Trade Commission, a quasi-independent government agency that has the final say in such disputes, they would quadruple the price of certain Canadian jets sold in the United States, effectively shutting Bombardier out of the U.S. market. The commission’s final ruling is expected in February.

Commerce Secretary Wilbur Ross described Friday’s decision as an effort to level the playing field on trade with Canada.

“The United States is committed to free, fair and reciprocal trade with Canada, but this is not our idea of a properly functioning trading relationship,” Ross said in a statement. “We will continue to verify the accuracy of this decision while [doing] everything in our power to stand up for American companies and their workers.”

Boeing heralded Friday’s decision as a long-awaited move to curtail alleged “dumping” by Bombardier, a term in international trade law that refers to selling a product abroad at an artificially low price.

“These duties are the consequence of a conscious decision by Bombardier to violate trade law and dump their C Series aircraft to secure a sale,” Boeing said in its statement. “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 described the decision as an “egregious overreach and misapplication of U.S. trade laws” in a statement issued Friday. The company also criticized the Commerce Department’s handling of the issue, saying it has “completely ignored aerospace industry realities” in calculating tariff margins.

[U.S. moves to impose tariffs on Canadian jetmaker, siding with Boeing]

The decision is yet another blow in an escalating trade dispute between the United States and Canada.

President Trump has criticized Canada for its pricing practices on certain dairy products from the United States, calling the country’s trade posture “a disgrace” that has hurt dairy farmers in states such as Wisconsin and New York.

He also is trying to renegotiate the North American Free Trade Agreement among Canada, the United States and Mexico. And earlier this year the Commerce Department made a similar move to impose duties on U.S. imports of Canadian soft lumber.

Friday’s decision concerns a multibillion-dollar deal from 2016 in which Bombardier agreed to sell 75 C Series CS100 jets to Atlanta-based Delta Air Lines. The CS100 is a commercial jetliner that seats about 100 people, on the smaller end of the spectrum for commercial jets.

In April, Boeing brought two trade complaints that teed off the current dispute, the first accusing Bombardier of selling planes in the United States at unfairly low prices and the second accusing it of unfairly benefiting from government subsidies when it competes abroad.

Canadian and British leaders reacted sharply to last week’s decision. The dispute also ensnares the United Kingdom because Bombardier employs a few thousand people at a factory in Northern Ireland.

“This is not the sort of behavior we expect from a long-term partner,” British Prime Minister Theresa May said of Boeing, which is a supplier to the British military.

[Boeing took a foreign firm to task over subsidies. Critics say Boeing gets help, too.]

Leaders from both countries have asked Trump to intervene in the matter, and they both also suggested the dispute would hurt Boeing in competitions for military contracts.

Some U.S. politicians also criticized the decision. In a Sept. 28 letter to the International Trade Commission, Sens. John McCain and Jeff Flake (R-Ariz.), both Arizona Republicans, pointed out that Bombardier employs close to 7,000 people in the United States and urged the commission to “avoid levying unnecessary or politically-motivated penalties that could have negative impacts on aerospace employees, U.S. carriers, and airline consumers.” A bipartisan group of seven senators on Friday issued a statement criticizing the decision.

Both tariffs could still be invalidated by the ITC. For the tariffs to be finalized, Boeing has to prove that it has been directly harmed by Bombardier’s business practices.

“If [the ITC] determines Boeing hasn’t been damaged, this whole thing vanishes like a puff of smoke,” said Richard Aboulafia, an analyst with the Teal Group, an aerospace research firm.

If the ITC does uphold both tariffs, it could be disastrous for Bombardier. Such a large tariff is exceedingly rare for a multimillion-dollar plane such as the CS100.

“Basically this will make the Bombardier plane prohibitively expensive in the U.S. market if it’s all upheld,” said Loren Thompson, a defense consultant whose think tank gets some funding from Boeing.

[In Canadian lumber town, real fears over a trade war with Trump]

Some analysts were confused as to why Boeing chose to bring the tariff petitions in the first place. Boeing did not compete with Bombardier on its deal with Delta, and it doesn’t make a plane that competes with the CS100.

One possibility is that Bombardier will one day move upstream within the U.S. market and produce a larger variant of the CS100, something that would compete directly with Boeing’s larger planes. Bombardier has not said it plans to do so, but the mere possibility has Boeing’s executives spooked.

“I haven’t seen their plan, but . . . they will probably move up,” Boeing Vice Chairman Raymond Conner said in a May 18 hearing before the ITC. “When you’re going to create a family, you start with a smaller [jet] and then you expand it, so the CS100 and then the 300 and then [they’ll] move to the 500.”

Boeing’s 787 Dreamliner competes closely with French aerospace firm Airbus’s A350 for dominance in the international market for larger commercial jets. Market share is roughly evenly split between the two companies, and the entry of a third competitor would present challenges for either firm. Boeing’s 737 has competed with Bombardier’s C Series planes in the past.

The rising trade dispute could end up hurting both sides, analysts said.

“It doesn’t seem that the optimal solution would be Bombardier facing tariffs and Boeing losing military contracts abroad. . . . That doesn’t seem to be the best situation for either side,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics. “But to do a deal you would need the White House to get involved.”

Alice Crites contributed to this report.