The U.S. Department of Commerce has clobbered aerospace giant Bombardier with a hefty 220 per cent countervailing duty on the sale of its CS100 commercial jets to a U.S. airline following a trade complaint from an American rival.
The department ruled that Bombardier benefited from improper government subsidies, a finding that deals a blow to the Montreal-based company's chances in its dispute with U.S. rival Boeing.
Bombardier responded with a statement saying, "The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion-dollar aircraft programs."
The company argues that "U.S. trade laws were never intended to be used in this manner, and Boeing is seeking to use a skewed process to stifle competition."
Meanwhile, Boeing, which had complained that Bombardier inked a deal with Delta Air Lines for up to 125 of the jets by offering the planes at below-market price, wasted no time Tuesday in declaring victory.
"Subsidies enabled Bombardier to dump its product into the U.S. market, harming aerospace workers in the United States and throughout Boeing's global supply chain," the company said in a statement.
The dispute is not about limiting innovation or competition, it continued, but rather "has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements."
The financial penalties aren't officially due until Bombardier delivers the first CS100 to Delta sometime in the spring.
Final ruling expected in March
The key will be whether U.S. officials find that the deal between Bombardier and Delta actually hurt Boeing's business, an issue that's not expected to yield a finding for at least six months.
But today's ruling does give Boeing momentum as the dispute drags on, and more leverage in any future talks between the Trudeau government and Boeing to reach a negotiated settlement.
Tuesday's ruling was a stunning turn in the dispute, as Boeing had been asking for an 80 per cent duty.
The list price for the planes is around $6 billion. But the actual amount of money involved in the deal has not been made public, and Boeing has alleged that it is much less.
The case has major implications for Bombardier as it could not only endanger its deal with Delta but also hinder future sales in the U.S. and hurt Canadian aerospace companies that work with Bombardier.
Speaking before the ruling, Prime Minister Justin Trudeau promised to continue to stand with Bombardier and Canada's aerospace industry. He also once again threatened to cut government ties with Boeing.
"Certainly we won't deal with a company that's attacking us and attacking thousands of Canadian jobs," Trudeau said outside the House of Commons.
Foreign Affairs Minister Chrystia Freeland said in a statement issued Tuesday night, that the U.S. duty is "is clearly aimed at eliminating Bombardier's C Series aircraft from the U.S. market."
With one preliminary ruling out of the way, the Commerce Department will now turn its attention to whether Bombardier "dumped" its CS100s into the U.S. market by selling them below cost.
That finding is scheduled for Oct. 4, but could be delayed.
Industry veterans told Reuters that this is the first time in memory duties have been considered on aircraft, following a 1980 agreement to free aircraft trade among 32 of the world's leading trading powers.
Did the deal hurt Boeing?
The question of whether the Bombardier-Delta deal hurt Boeing is being tackled by the U.S. International Trade Commission, whose ruling likely won't come out until spring.
The commission's ruling will be the key to whether any duties slapped on the CS100s become permanent, or whether the case is dismissed, all duties paid are refunded and the Bombardier-Delta deal can go ahead as planned.
"We are confident the USITC will conclude that no U.S. manufacturer is at risk because neither Boeing nor any other U.S. manufacturer makes any 100-110 seat aircraft that competes with the CS100," Delta Air Lines said in a statement emailed to CBC News.
"Boeing had the chance to compete with Bombardier for Delta's purchase of aircraft in this size range, but Boeing's only proposed alternative to the CS100 was to offer Delta used Brazilian-made regional jets. Boeing has no American-made product to offer because it cancelled production of its only aircraft in this size range – the 717 – more than 10 years ago."
After the trade commission's decision, either side can appeal the entire case to the U.S. Court of International Trade, bring it before NAFTA dispute bodies or even take the matter to the World Trade Organization.
That could not only drag the case out but also leave a cloud of uncertainty hovering over Bombardier, and affect its ability to sell more planes into the U.S. market or overseas.
Quebec Finance Minister Carlos Leitao, whose government invested $1 billion US for a 49.5 per cent stake in the CSeries commercial jet program last year, said he was confident Bombardier would beat Boeing.
But he tempered his optimism by noting that it could take a long time to resolve the case, which Leitao said could hurt Bombardier — and which is why Quebec will continue to support the company.
"At the end of the day, as often happens in this type of dispute, the Canadian side will win," he told The Canadian Press in New York. "Now, that day could be a very long day, so that's where the risks come from."
It was the second bit of bad news for Bombardier on Tuesday, after two European railway manufacturers announced they were merging and would present a united front against the Montreal-based company.
But there was also a glimmer of good news, after a senior Bombardier official said the firm was hoping to close several deals with Chinese airlines.