U.S. trade officials on Monday will hear final arguments over Boeing’s claim that it has been harmed by planned imports of Canadian aircraft, in a case that underscores corporations’ efforts to capitalize on the Trump administration’s tougher trade stance.
The Commerce Department already has made a preliminary determination that Bombardier’s medium-range CSeries aircraft received illegal government subsidies before being sold well below cost in the U.S. market.
At issue in Monday’s hearing before the International Trade Commission is whether Boeing, which first complained to the government in April, has been damaged by the Bombardier sales. None of the single-aisle CSeries planes have yet been delivered in the U.S., though Delta Air Lines placed a $5 billion order in 2016.
Boeing’s complaint represents a departure from airline industry practice, where battles over government subsidies are generally conducted by diplomats in bilateral talks or at the World Trade Organization in Geneva. Boeing for years shied from mounting a frontal assault on Airbus, its chief global rival, for fear of angering U.S. airlines or sparking retaliation by European governments.
“No one’s ever used the trade laws in this way,” said Edward Alden, a trade expert at the Council on Foreign Relations. “This is really a watershed case, to go against Bombardier in this way. It’s a sledgehammer.”
The case also highlights the Trump administration’s elevation of trade law arcana to high politics. The Commerce Department and ITC process for handling trade complaints traditionally has been insulated from political pressures. But in the Trump administration, senior officials such as Commerce Secretary Wilbur Ross have weighed in publicly after each stage, highlighting the president’s commitment to tougher trade enforcement.
“The United States is committed to free, fair and reciprocal trade with Canada, but this is not our idea of a properly functioning trade relationship,” Ross said in October, when Commerce issued its preliminary verdict that Bombardier had dumped its aircraft in the U.S. market.
Through September 20, Commerce initiated 65 anti-dumping or subsidy investigations, a 48 percent increase from the last year under the Obama administration and a 16-year high in such actions.
The Trump administration this year has fielded unfair trade complaints about the dumping of South Korean washing machines by Whirlpool Corp.; Vietnamese steel from American steel makers, including U.S. Steel and Nucor Corp.; and subsidized Chinese tool chests and cabinets from Waterloo Industries of Sedalia, Mo.
In the past, “you haven’t had the political appointees, the secretary of commerce or the president, really being actively involved and weighing in,” said Chad Bown, a trade expert with the Peterson Institute on International Economics. “By the Trump administration actively making public pronouncements on individual cases, they have made it appear to be political to outsiders.”
That’s irked U.S. allies in Ottawa and London, who have their own domestic trade politics to manage. Canadian Prime Minister Justin Trudeau canceled the planned purchase of 18 Boeing Super Hornet jet fights in retaliation for the trade complaint, opting instead to buy used Australian military aircraft. Meanwhile, British Prime Minister Theresa May called President Trump in September seeking his help in ending the trade dispute. The CSeries wings are made in Belfast.
Commerce Department officials on Monday also are scheduled to make public their final determination of import duties to be assessed on any Bombardier imports, to compensate for the subsidies and below-cost sales. In a pair of preliminary rulings this fall, Commerce approved a nearly 300 percent combined duty, which would quadruple the Bombardier jet's price and likely block it from the lucrative U.S. market.
Boeing insists that the CSeries is a direct competitor for its 737 Max 7 airliner in the market for 100 to 150-seat aircraft, which Bombardier and many industry analysts dispute. The all-new CS100 can be outfitted with 100 to 133 seats while the smallest Boeing 737 Max, an upgraded version of a model that debuted in 1967, carries 138 passengers, according to the company’s website.
“I would have a lot of problems saying they’re apples and apples,” said Peder Andersen, who was the ITC’s aviation expert for 26 years before retiring in 2013.
Bombardier priced the aircraft sold to Delta at $20 million apiece, well below their $33 million production cost, according to Boeing officials who briefed reporters on the condition that they not be identified.
Boeing says those cut-rate sales have forced it to lower its prices and threaten its future prospects. If the ITC finds in Boeing’s favor, in a decision that is expected February 1, Commerce would order the duties collected by U.S. customs agents.
Bombardier says Boeing was not in a position to fill Delta’s order for years, noting the Chicago-based manufacturer has a 4,000-order backlog.
In a bid to circumvent potential U.S. duties, Bombardier last month gave Airbus majority control of the CSeries program in a no-cash deal. The European aircraft consortium plans to add an assembly line to its Mobile, Alabama, facility to produce the jets as a complement to Bombardier’s production in Canada.
Boeing has cast doubt on the partnership, which it derides as an alliance between two companies that depend upon government largesse to survive. But industry analysts say that the joint venture signals the potential limits of Boeing’s resort to trade remedies.
“I think this whole thing might have been overtaken by events,” said Richard Aboulafia, an aviation industry analyst with the Teal Group consultancy in Fairfax, Virginia. “This was a politicized trade complaint designed to appeal to the protectionist wing of the Republican Party.”
Even if U.S. trade officials ultimately side with Boeing, the aircraft maker might be heading for a Pyrrhic victory, some analysts say. Bombardier planes made in Alabama could dodge U.S. trade sanctions, if their share of U.S. components is high enough. Or the Canadian company could make an end run around U.S. duties by selling the planes to one of Delta’s foreign alliance partners, which could then lease them to the Atlanta-based airline.
“The real question is whether there’s a single aircraft that gets a duty applied to it,” said Scott Miller of the Center for Strategic and International Studies. “These things have wings and jet engines. They can fly around. You can take delivery in a lot of different ways.”