Gajan Sathananthan, Riyaz Dattu
May 8, 2017
Our last international trade brief dealt with the impact of softwood lumber tariffs on Canadian companies, and the Trump administration’s investigation of the effect of steel imports and similar investigation on imported aluminium on national security grounds, using a rarely invoked process. In this brief, in several articles, we discuss government procurement and dispute settlement under the Canadian Free Trade Agreement (CFTA), the alternative of using BITs for investment protection so as to avoid sovereign immunity defences such as was the basis for the rejection of an expropriation claim by a unanimous United States Supreme Court, and Boeing launching a trade remedies petition against Bombardier.
As mentioned in our last international trade brief, Boeing has submitted a trade remedies petition to the U.S. Department of Commerce (Commerce), seeking the imposition of antidumping and countervailing duties against Bombardier. The petition targets Bombardier Inc.’s CSeries aircraft, alleging aggressive pricing based on subsidization by governments in Canada and dumping practices when selling into the U.S. market.
In relation to the claim of subsidization, it is alleged that Bombardier received subsidies from the governments of Canada, Québec and the United Kingdom to launch the CSeries program, and thereafter when Bombardier was facing financial difficulty, it received aid from the governments of Québec and Canada to help the program continue. Boeing alleges these subsidies allowed it to aggressively price the CSeries to U.S. airlines, and relies on a statement from Québec Premier Philippe Couillard, who is claimed to have said that the large sale of CSeries aircraft to Delta Airlines occurred in large part because of his government’s billion-dollar investment into Bombardier.
The petition also cites U.S. President Donald Trump’s administration’s trade agenda. Specifically, after describing Bombardier’s sales as a “glaring instance of a market distorted by foreign government subsidies and dumping,” it refers to the President’s 2017 Trade Policy Agenda [PDF], which states the Trump administration is committed to “act aggressively as needed to discourage this type of behaviour.” To further support the need for such aggressive action, the Boeing petition also makes frequent references to Airbus’s entry into the U.S. as a “cautionary tale,” and describes how Airbus’s subsidized sales led to MacDonnell Douglas’s eventual demise and Lockheed’s exit from the civilian airspace industry, clearly signalling that failing to stop Bombardier could lead to analogous damage.
Boeing itself has however also been the subject of similar allegations. As recently as a few months ago the World Trade Organization delivered a landmark ruling against Boeing, stating that it had received prohibited subsidies from Washington state. These prohibited subsidies, which some estimate at nearly US$9 billion, were offered in exchange for Boeing’s agreement not to build plants for its new 777x airplanes anywhere outside of Washington. This is a common issue in the aerospace industry, where development costs are large and governments often intervene to limit the domestic industry’s risks, in exchange for the large number of high-paying jobs (and other benefits) the industry brings.
The context of this petition should cause some concern for other industries, as it has wider ramifications beyond a dispute between two aircraft manufacturers. Bolstered by the aggressive stance taken by the White House on trade issues with Canada, other U.S. companies in other industries could follow Boeing’s lead and launch similar petitions. Canadian companies, especially those that rely heavily on the U.S. market for exports, should be wary of U.S. competitors using the current anti-NAFTA climate to petition the Trump administration for increased protection from Canadian exporters.
 “Exclusive: WTO rules Boeing's state subsidies illegal”, BBC News (November 28, 2016).