(Reuters) The Trump administration has recommended steep anti-subsidy duties on Bombardier’s C-Series jets, setting up the next round of a fierce international trade dispute between the US and Canada.
The US Commerce Department has confirmed the imposition of duties of 292% stems following a complaint by Boeing that Bombardier had been illegally subsidised by the Canadian government.
The move could hit jobs at Bombardier’s plant in Northern Ireland, where the wings for the C-Series are made.
Boeing has claimed that a deal by Bombardier with Delta Air allowed the plane-maker to dump its newest jetliner in the US market at below cost.
Both Bombardier's and Boeing's share prices were down on Friday, on the back of concern that Boeing's actions may rebound on the company in the marketplace – although Bombardier's was showing signs of recovery.
“Today’s decision validates Boeing’s complaints regarding Bombardier’s pricing in the United States, pricing that has harmed our workforce and US industry,” Boeing said in a statement on the decision, which was generally expected within the aerospace industry.
Duties would triple cost of plane
Delta Air, the second largest US carrier by passenger traffic, has an order for 75 of the 100-to-150 seat C-Series jets.
The aircraft starts at $79.5m, according to list prices, or some $5.9bn for the total order, but carriers typically receive steep discounts.
If confirmed, the duties would more than triple the cost of a C-Series aircraft sold in the US, based on Boeing’s assertion that Delta received the planes for $20m each, well below an estimated cost of $33m and what Bombardier charges in Canada.
The US penalty against Bombardier will only take effect if the lesser-known US International Trade Commission (ITC) rules in Boeing’s favour, as it has so far, with its final decision expected in early 2018.
Bombardier criticised the US decision as out of touch, citing the Canadian planemaker’s plan to team up with Airbus to launch assembly of the C-Series from a production line in Mobile, Alabama, making it a domestic product for US buyers.
‘Divorced from reality’
“Unfortunately, the Commerce Department decision is divorced from this reality and ignores long-standing business practices in the aerospace industry, including launch pricing and the financing of multi-billion dollar aircraft programmes,” Bombardier said in a statement.
Canadian foreign affairs minister Chrystia Freeland said the government would consider its next steps and options for appeal.
“We are steadfast in our determination to defend Canadian companies and workers against protectionism,” Freeland said in a statement.
Freeland said Boeing has failed to demonstrate that it is being threatened with injury by the C-Series “in a market segment it exited over a decade ago”.
Boeing had called for countervailing duties of 79% to offset what it described as harmful Canadian subsidies to Bombardier.
It also identified a “dumping margin” of 80%, based on the unpublished prices at which it claims Bombardier sold the C-Series planes to Delta, for a combined border charge of just under 160% on the Bombardier jets.
The latest decision is in line with US Commerce Secretary Wilbur Ross’ pledge to aggressively police unfairly traded imports to help shrink US trade deficits.
The deal could cost Boeing far more than it hopes to make by lodging the objection against Bombardier. A few weeks ago Canada announced that it was not going to proceed with an order for 18 Boeing Super Hornet fighter jets, costing the firm up to $6bn in lost revenue.
Delta Air has also just placed an order for $25bn order for 200 airliners from Airbus, rather than Boeing, amid rumours it doesn't like the way Boeing is 'bullying' its smaller rival. Airlines fear less competition in the market will lead to steeper prices in the long run.