Sept. 26, 2017, © Leeham Co.: The decision was expected, but the tariff was a shocker. The US Department of Commerce levied a 219% tariff on Bombardier’s CS100 sale to Delta Air Lines after Boeing filed a complaint about price dumping and illegal subsidies.
Boeing asked for a 79% tariff on countervailing duties and the same on anti-price dumping. The latter preliminary decision is due Oct. 4. It was expected to be the same as the countervaling duty.
The Commerce Department press release is below.
U.S. DEPARTMENT OF COMMERCE ISSUES AFFIRMATIVE PRELIMINARY COUNTERVAILING DUTY DETERMINATION ON IMPORTS OF 100- TO 150-SEAT LARGE CIVIL AIRCRAFT FROM CANADA
WASHINGTON – Today, U.S. Secretary of Commerce Wilbur Ross announced the affirmative preliminary determination in the countervailing duty (CVD) investigation of 100- to 150-seat large civil aircraft from Canada, finding that exporters of this merchandise received countervailable subsidies of 219.63 percent.
The Commerce Department will instruct U.S. Customs and Border Protection to collect cash deposits from importers of 100- to 150-seat large civil aircraft based on these preliminary rates.
“The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” said Secretary Ross. “The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”
Although Canadian civil aircraft subject to this investigation have not yet been imported, an April 2016 press release announcing the sale of Canadian civil aircraft to a U.S. airline valued the order to be in excess of $5 billion.
The petitioner is The Boeing Company (IL).
Enforcement of U.S. trade law is a prime focus of the Trump administration. From January 20 through September 20, 2017, the Commerce Department has initiated 65 Antidumping (AD) and CVD investigations – a 48 percent increase from the previous year. For the same time period in 2016, The Commerce Department had initiated 44 antidumping and countervailing duty investigations.
The Commerce Department currently maintains 411 AD and CVD duty orders which provide relief to American companies and industries impacted by unfair trade. CVD laws provide U.S. businesses and workers with an internationally accepted mechanism to seek relief from the harmful effects of unfair subsidization of imports into the United States.
Unless the final determination is aligned with the concurrent antidumping duty investigation, Commerce is currently scheduled to announce its final CVD determination in this investigation on December 12, 2017.
If the Commerce Department makes an affirmative final determination of subsidization and the U.S. International Trade Commission (ITC) makes an affirmative final injury determination, Commerce will issue a CVD order. If the Commerce Department makes a negative final determination of subsidization or the ITC makes a negative final determination of injury, the investigation will be terminated and no order will be issued.
Click HERE for a fact sheet on today’s decision.
The U.S. Department of Commerce’s Enforcement and Compliance unit within the International Trade Administration is responsible for vigorously enforcing U.S. trade laws and does so through an impartial, transparent process that abides by international rules and is based solely on factual evidence.
Imports from companies that receive unfair subsidies from their governments in the form of grants, loans, equity infusions, tax breaks and production inputs are subject to “countervailing duties” aimed at directly countering those subsidies.
In fiscal year 2016, the United States collected $1.5 billion in duties on $14 billion of imported goods found to be underpriced, or subsidized by foreign governments.
Boeing Statement RE: Commerce Duty Determination on Bombardier Subsidies
Sept. 26, 2017
“The U.S. Department of Commerce today affirmed that Bombardier has taken massive illegal subsidies in violation of existing trade law. As a result of this finding, Commerce announced a preliminary determination of a countervailing duty of 219.63% that will be imposed on each Bombardier C-Series aircraft imported into the United States. 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. Early next month, Commerce is expected to confirm the magnitude of the illegal dumping and announce additional duties associated with that finding.
“Global trade works only if everyone plays by the rules that we’ve all endorsed to ensure fair competition, as adjudicated by independent national and international bodies. This dispute has nothing to do with limiting innovation or competition, which we welcome. Rather, it has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements.
“The process that will continue to play out over the next several months at the International Trade Commission and Commerce is the longstanding, transparent course for examining and addressing situations where products are ‘dumped’ into the United States at below-cost prices for the purposes of gaining market share. We have full confidence that this will continue to be a fair and fact-based investigation, and we look forward to its conclusion early next year.”
Boeing in Canada: “Boeing has a proven and enduring commitment to Canada. We’ve been doing business in Canada since 1919 and contribute approximately $4 billion (Canadian) annually to Canada’s economic growth and development. We employ about 2,000 people in Canada and support an additional 15,500 jobs through our supplier network of more than 560 Canadian companies operating coast to coast. We value Canada as a customer and supplier-partner for both our commercial and defense businesses. Boeing contributes nearly 14% of the total economic impact driven by the Canadian aerospace industry, and our spending in Canada is growing at around 8% every year, ahead of both the Canadian economy generally and Canadian aerospace industry in particular.”
Boeing in the UK: “Boeing and the UK will celebrate 80 years of partnership in 2018. The company has doubled its direct employment in the UK since 2011 and tripled its spending with more than 250 companies in the UK supply chain over the same period, to £2.1 billion in 2016. More than 18,700 jobs in the UK are at Boeing or in the company’s tier one supply chain. Earlier this month Boeing broke ground for its first factory in Europe, in Sheffield. We are pleased to work with our partners, including the British Government, and provide such a vote of confidence in the UK.”
Bombardier’s statement regarding the Commerce Department Countervailing Duties Preliminary Decision:
“We strongly disagree with the Commerce Department’s preliminary decision. The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion-dollar aircraft programs. This result underscores what we have been saying for months: the 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 and prevent U.S. airlines and their passengers from benefiting from the C Series.
The simple truth is that Bombardier created a superior aircraft that is more efficient, more comfortable, and quieter. The C Series serves a market segment not supported by any U.S. manufacturer. Delta wants to bring this remarkable new aircraft to the U.S. flying public. Boeing wants to prevent U.S. passengers from realizing these benefits, irrespective of the harm that it would cause to the U.S. aerospace industry and the cost to airlines and consumers.
Looking beyond today’s and next month’s preliminary decisions, the International Trade Commission will determine next year whether Boeing suffered any injury from the C Series. Because Boeing did not compete at Delta and because Boeing years ago abandoned the market the C Series serves, there is no harm.
There is wide consensus within the industry on this point, as well as a growing chorus of voices, including airlines, consumer groups, trade experts, and many others who have come forward to express grave concerns with Boeing’s attempt to force U.S. airlines to buy less efficient planes with configurations they do not want and economics that do not deliver value.
The U.S. government should reject Boeing’s attempt to unfairly tilt the playing field in its favor and to impose an indirect tax on the flying public through unjustified import tariffs.”
The amount of tariffs is a shocker.
The Seattle Times has this quick take.
An appeal is certain. But first, the process returns to the US International Trade Commission to determine what, if any, injury to Boeing and the US aerospace industry occurred or is “threatened.”
If injury is determined and the final decision next year upholds then preliminary findings, which is all but certain, then Bombardier and the Canadian and UK governments have several options, as outlined here.
One option speculated by some aerospace analysts that Bombardier and Delta could avoid tariffs by selling the airplanes to a non-US leasing company for lease to Delta is misguided.
The airplanes still require importation to the US for Delta to fly them. These would still be subject to import tariffs.