Boeing Targeting Bombardier in AD/CVD Investigation Raises Global Systemic Concerns
For the first time, a global aircraft producer has invoked domestic trade remedy laws against imports from a competitor. On 27 April 2017, the Boeing Company (Boeing) filed a petition with the US Department of Commerce (USDOC) and US International Trade Commission (USITC) seeking the imposition of anti-dumping and countervailing duties on imports of 100-150 seat large civil aircraft (LCAs) from Canada. The petition explicitly targets Bombardier’s new C Series aircraft. It alleges that dumped and subsidized imports of C Series aircraft compete in the US market with Boeing’s 737-700 and 737 Max 7 aircraft and threaten material injury to the US production of those aircraft.
The petition further alleges that “Bombardier has received billions of dollars of countervailable subsidies with respect to the manufacture, production, or export of Aircraft” and identifies numerous subsidy programs, including equity infusions, launch aid, export development financing, customer financing, the Technology Partnerships Canada Program, the Technology Demonstration Program, provision of production facilities and land at Mirabel, tax credits provided by the city of Mirabel, and R&D and financing support. The subsidies are alleged to be provided by the governments of Canada and Quebec, lnvestissement Québec, Caisse de dépôt et placement du Québec, and the city of Mirabel.
Separately, the petition alleges that:
“Bombardier is dumping the C Series at extreme levels in the U.S. market. At USD 19.6 million per aircraft, C Series pricing in the Delta sale is well below a constructed value of USD 35.3 million per aircraft. It is also significantly lower than Bombardier’s contemporaneous below-cost sale in its home market, to Air Canada, which was reportedly at USD 30 million per aircraft. Comparing the Delta price to constructed value yields an estimated dumping margin of at least 80.50% ad valorem”.
If dumping, subsidization, and injury are ultimately found to exist by the USDOC and the ITC, anti-dumping and countervailing duties will be imposed. Based on the allegations in the petition, the amounts of such duties could be substantial.
Until the filing of this petition, trade disputes over aircraft subsidies have been fought in the World Trade Organization (WTO) between Canada and Brazil (1996-2003) and the United States and European Union (2004-current). Both Boeing and Airbus have been found by the WTO to have benefitted from subsidies in the production of their LCAs, and their disputes in the WTO continue. The primary reason why Boeing and Airbus restricted their disputes to the WTO, and did not resort to domestic AD/CVD investigations, is likely because each company occupies a large domestic market, and reciprocal AD/CVD investigations would have inevitably ensued, hurting both companies. This is not the case with Canada, a small market compared to the United States. Presumably, Boeing has concluded that the upside of targeting Bombardier exceeds any downside in the Canadian market.
Boeing’s action raises vital global systemic issues. Given the expense and risk associated with aircraft production, government support has long been necessary in the development of new aircraft and technologies, whether in the United States, the European Union, Canada, or elsewhere. The entire world benefits from the development of these new aircraft, and therefore from the widespread government subsidization that facilitates their development and production. Such benefits include, for example, lower costs, increased flight frequencies, better safety, reduced environmental emissions, increased comfort, and innovations — such as the capability to land Bombardier’s low-noise C Series on a small runway like that at the Toronto Island airport. Global subsidization, combined with the size and importance of the US and EU markets to aircraft sales, puts subsidized Boeing and Airbus aircraft in an imbalanced position of strength against their smaller competitors when it comes to invoking domestic AD/CVD protection.
Tereposky & DeRose is monitoring this trade action from the perspectives of global trade rules and systemic issues. Please feel free to contact us if you have any questions relating to the matters raised in this article or the trade action more generally.
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