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Commerce Department sides with Boeing on CSeries tariff

The US Commerce Department announced on 20 December that Bombardier CS100s ordered by Delta Air Lines could face a 292.21% tariff if they cross into the USA in a partially or fully assembled state.

The agency’s upheld the final tariff value after releasing a preliminary estimate in September, but still counts as a massive victory for Boeing and a devastating blow to the commercial aircraft manufacturing industries of Quebec and Northern Ireland.

Now that the Commerce Department has decided the amount of the tariff, the final decision on whether to implement the 292.21% duty moves to the US International Trade Commission.

The four-member commission must decide around 1 February whether Bombardier’s sales and financing practices injured Boeing in the 100-150-seat commercial aviation market. If no injury is found, the ITC could terminate the Commerce Department’s tariff.

Secretary of Commerce Wilbur Ross says the tariff decision came after a “full an unbiased review of the facts”.

“The United States is committed to a free, fair and reciprocal trade and will always stand up for American workers and companies being harmed by unfair imports,” he adds.

The decision also included language that could disrupt Bombardier’s plan to circumvent the tariff by completing final assembly of CSeries aircraft ordered by US airlines in Mobile, Alabama.

The tariff will apply “regardless of whether they enter the United States fully or partially assembled”, the Commerce Department says.

Bombardier has said it’s committed to opening a CSeries final assembly line in Mobile as part of a pending deal with Airbus, which has agreed to take an ownership stake in a CSeries joint venture with Bombardier and Investissement Quebec after clearing anti-trust reviews. Airbus operates a final assembly line of the A320 in Mobile.

The Commerce Department’s decision comes as the Trump Administration takes a hard line on trade practices it views as hurting American workers. Investigations on dumping and subsidy complaints by the Commerce Department have increased by 52% through 18 December this year, the agency says.

The Administration’s approach aligns with Boeing’s long-term effort to push back against improper government subsidies to competitors, even as the company has been found by the World Trade Organisation to benefit from more than $1 billion of unfair benefits from the state of Washington.

But the outcome, if upheld by the ITC in February, could prove disastrous to the CSeries programme – and the industries it supports at Bombardier’s facilities in Quebec and Northern Ireland.

The proposed tariff represents the sum of two amounts. It includes a 79.82% tariff to offset a Commerce Department ruling that Bombardier engaged in price dumping, meaning it sold the CS100s to Delta below its fair market value by that amount. Another duty of 212.39% was set to offset Bombardier’s benefits from unfair subsidies provided by the governments of Quebec, the UK and Canada.

The question now before the ITC is whether those improper benefits injured Boeing in the 100-150-seat market for commercial aircraft.

In a hearing on 18 December, the four commissioners in the ITC betrayed no obvious slant, grilling executives and experts from Bombardier and Boeing about equally. The ITC panel also seemed skeptical on fundamental claims by either side.

To Boeing’s witnesses, the commissioners seemed bewildered how the 126-seat 737-700 or 138-seat 737 Max 7 is harmed by sales of 110-seat CS100s, especially since a Boeing aircraft didn’t compete for the Delta order. But the panel also appeared dubious about Bombardier’s claims that the CSeries and the smallest versions of the 737 do not compete against each other at all.

It was the first time that the commission’s members had heard a case that involved the commercial aircraft industry. The four commissioners asked a broad range of questions, including some that revealed an ignorance about fundamental details of the industry’s dynamics, including asking if Boeing adjusts 737 production rates based on demand and whether any CSeries has entered operational service yet.

A ruling by the ITC that the CSeries pricing and government support harmed Boeing will add another setback to Bombardier’s commercial aircraft business. It had only recently regained its footing by announcing a proposed partnership with Airbus and three order commitments from new customers for the CSeries.

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