Oct. 30, 2017, © Leeham Co.: Bombardier made a fatal error in the Boeing/US trade dispute that almost certainly precludes a negotiated settlement and which the Airbus-CSeries joint venture is highly unlikely to cure, an expert trade lawyer says.
William Perry, of the Seattle law firm Harris Bricken, focuses on anti-dumping and countervailing duty cases, the two issues at the heart of the Bombardier CSeries
case. He previously worked for the US Department of Commerce on trade cases.
He also was an attorney for the US International Trade Commission, where Commerce’s decision to impose tariffs of 219% on the CVD element and 79% in the anti-dumping case goes for judgment.
Perry says flatly, Bombardier will lose at ITC.
Because Bombardier refused to answer Commerce’s questions in the anti-dumping case.
This, he says, was a fatal error that not only will cause BBD to lose at ITC but also on any appeal. US law is clear on the penalties when a respondent refuses to answer Commerce’s questions.
And, Perry says, Canada and the United Kingdom have identical laws that would hammer a respondent refusing to answer questions from their governments in an anti-dumping case.
This makes it highly unlikely that US Commerce Secretary Wilbur Ross or President Trump will negotiate a settlement, he said—something he thought was a possible outcome before the DOC’s decisions were handed down.
Perry writes about this case on his blog (search for Bombardier; the relevant portion is way down in a very long set of topics).
“According to Commerce, Bombardier only submitted arguments in response to sections B through D of the questionnaire,” Perry writes. “It did not provide the facts to support those arguments. Under US AD law, however, Commerce Department decisions and respondent’s arguments have to be based on the facts on the Administrative Record. When there are no facts, Commerce will use All Facts Available.”
Perry continued, “Through intermediaries, I have been told that Bombardier refused to release that information to Commerce because of fear it would be released to Boeing. If that is true, it reveals the failure of Bombardier’s outside lawyers to discuss how Commerce Department Administrative Protective Orders work in AD and CVD cases. Under US AD and CVD law, only outside counsel, not Boeing’s inside counsel, are granted access to Bombardier information and if those outside lawyers reveal that information to Boeing, they can be disbarred. Trade counsel in the US take very seriously the APO requirements under the US AD and CVD Law. In addition, Bombardier’s outside counsel has had access to Boeing’s confidential information under Administrative Protective at the US International Trade Commission so there is simply no sympathy for Bombardier’s arguments”
Following the announcement that Airbus will acquire 50.01% of the CSeries program, reducing Bombardier and Quebec to minority partners, Boeing claimed none of this matters. Neither, Boeing claimed, does the plan to assemble the CSeries in Mobile (AL). The CVD and anti-dumping duties remain, Boeing claimed
Airbus and Bombardier claimed that by assembling the CSeries in Mobile, with US workers, and the fact that about 52% of the CSeries by value is sourced from the US, no duties will be required.
Everyone is wrong, Perry said, and none of it is simple.
“The jurisdiction in AD and CVD cases is ‘in rem’ over the things, products, being imported into the US,” Perry wrote on his blog. “The critical issue is how did Boeing describe the products to be covered by the case and that are in the Scope of the Merchandise Section in the Federal Register notice issued by the Commerce Department.”
Perry notes that the Scope of the case doesn’t cover parts, but “partially assembled” airplanes.
“The scope includes all aircraft covered by the description above, regardless of whether they enter the United States fully or partially assembled, and regardless of whether, at the time of entry into the United States, they are approved for use by the FAA.” (Emphasis added by Perry.)
“The real question is whether Customs will consider any parts imported into the United States to be ‘partially assembled’ civil aircraft,” Perry writes.
In an interview with LNC, Perry said wing shipsets from Bombardier’s Belfast, Northern Ireland, plant, fuselage sections from China, where Bombardier outsources a major fuselage section, or BBD’s Montreal, Canada, plant, the cockpit and tail sections from BBD in Canada will likely be viewed as “partially assembled” airplane sections—and subject to duties.
None of the US-sourced components would be subject to duties.
Figuring out the value of the “partially assembled” airplane sections is complex and difficult but not impossible, he said.
The only sure way around any duties is for everything to be produced in the US or to import the wings, fuselage sections and so on in a condition that “partially assembled” doesn’t apply.
But simplistically, the onerous duties of about 300% only apply to 48% of the airplane, not 100%, he said.
If one accepts Boeing’s thesis that the actual cost to Delta Air Lines, which ordered the CS100 and which is the subject of the complaint, is $19.6m, 48% is $9.4m. A 300% tariff would be $28.2m, not the crushing $58.8m most commonly computed.
Delta and Bombardier denied the price to Delta was $19.8m. Unconfirmed market information puts the price anywhere from $23m-$24m to the upper $20m range. Whatever the true price, it doesn’t matter: Bombardier, as the respondent, refused to turn over the data to Commerce for evaluation.
BBD also refused to turn over cost information.
Instead, it presented arguments as to why the information “couldn’t” be turned over.
Perry, on his blog and in the interview with LNC, said this is Bombardier’s fatal error, one that means it will lose at the ITC review of the DOC’s preliminary decision and on any appeal.
A “Review Investigation,” which is normal in CVD and anti-dumping cases, begins a year after the final decision from ITC and takes a year-and-a-half to complete, Perry said. Bombardier might see some relief in the CVD tariff, but because it refused to answer questions in the anti-dumping case, the 79% tariff won’t change.
“The stupid mistake they made was not responding to the dumping case,” Perry told LNC. “If they had responded, the DOC could have calculated a figure” that might have been lower than the 79%. Absent information, the DOC rendered its decision on the basis of “All Facts Available” (which largely were Boeing’s assertions), and BBD’s goose was cooked.
Furthermore, had Bombardier provided information, Perry said a government-to-government negotiation to settle the case might have happened. But not now, he believes.
Appeals to NAFTA and the WTO are also unlikely to succeed, he said. The organizations have their own rules about failure to comply with questions, to which the UK, Canada and the US are signatories.
Who pays the tariff?
Perry said the importer of record pays the tariff. Unless the importer is a Bombardier US subsidiary, it could well be that Airbus will be the importer of record–and Airbus would pay the tariff.