Bombardier trade dispute: "We appear to be entering a new phase"

By Justin Ling September 28, 201728 September 2017

Bombardier trade dispute:

 

In the most recent trade spat in the era of “America First” the U.S. Department of Commerce has slapped a 219 percent anti-subsidy duty on Bombardier's C Series aircraft, to punish what it views as illegal states subsidies from Canadian and U.K. governments.

“It’s an astounding number,” says Riyaz Dattu, a partner specializing on international trade with Osler.

The decision, spurred by a complaint from Boeing, has already rocked the already-beleaguered Quebec aerospace company, as their shares have tumbled over the past day.

As Dattu points out, it was expected that the U.S. Department of Commerce would find “some level of subsidization.” But the figure announced by Washington on Wednesday is staggering, even though it may yet be revised down and, eventually, set aside by a NAFTA panel.

“The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” said Commerce Secretary Wilbur Ross in a statement announcing the decision. “The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

But Dattu questions how Washington calculated that subsidization, suggesting it is not altogether correct.

He notes that, of the 219 percent countervailing tariff, 150 percent is attributed to the Quebec government’s equity in the Bombardier project. That estimation is well beyond the actual value of Quebec’s equity stake in the project.

According to Dattu the U.S. Commerce Department concluded that “the Quebec government overpaid for its shares” and forked out well over the fair market value for its stake.

He calls that “unique” in the context, and the estimation might not hold up to closer scrutiny.

The U.S. Commerce Department still has to rule on anti-dumping claims made by Boeing against Bombardier, and will need to make a final determination on the counter-vailing duties. Ultimately, even if Boeing’s claims of subsidy are correct, it may be moot: Boeing may be unable to point to any damages.

If Bombardier choses to take the matter to a NAFTA panel, it may well conclude that Boeing was not harmed at all by Bombardier’s subsidized jets.  Industry watchers say that Boeing was never in running for the contract it alleges, in the complaint, it lost to Bombardier.

And if Boeing can’t prove injury, the panel may well send the determination back to Commerce for re-evaluation — giving Canada a leg-up in negotiations in the process.

Whatever happens to this case, the very fact that it got this far is itself curious.

“It’s fair to say that the Department of Commerce decisions have typically been protectionist in the United States,” says Dattu. “But I think we appear to be entering a new phase.”

Dattu says Trump’s “America First” rhetoric is inspiring companies to file more of these claims, knowing they are playing into the president’s agenda in so doing.

Trump, after all, used a South Carolina Boeing factory as a stage to proclaim, in February: “We are going to fight for every last American job.”

 

 

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