Flying into Protectionism

Rafiq Habib - 1A Management
Posted on: November 10, 2017

By: Rafiq Habib

 

    Bombardier Aerospace recently began selling its new 100-150 seat CSeries aircraft, the results of 8 years of research and development.  With a final project price tag of $6 billion, Bombardier claims that the CSeries uses 20% less fuel and delivers an overall 15% cost savings compared to competitor aircraft.  But any hopes that the CSeries would revolutionize the midsize aircraft industry and save Bombardier from its fragile financial state were quickly thrown into question when The Boeing Company suddenly filed a complaint with the US Department of Commerce, claiming that Bombardier was attempting to sell its aircraft at a loss in order to gain an advantage in the US market (a practice known as dumping) and had “received unfair, anti-competitive state support from the [Canadian] government.”  The US Department of Commerce ruled in Boeing’s favour, placing a 79.82% preliminary duty, and an additional 219.63% anti-dumping duty on any CSeries imports, effectively shutting down any sales of the aircraft to US companies.

    The problem is, there seems to be little basis for the complaint.  For starters, Boeing does not have a plane that competes directly with the CSeries.  Without a direct competitor that would be affected by the CSeries sale, the World Trade Organization has stated that there is no basis for a dumping tariff.  Additionally, Bombardier has received hardly any government support.  Sure, it was given a $1 billion investment by the Quebec government and $372.5 million in financial aid from the Canadian government for the CSeries project.  However, this pales in comparison to the amount of government support Boeing has received.  In the last 15 years, Boeing has been given $13 billion in local and state taxes.  In the 2016 year, $34 billion of Boeing’s revenues came from sales to and research and development work for the US Department of Defense.  Evidently, there is no basis for this action by the Department of Commerce.

Disappointingly, this is not new behaviour from the US government.  In the last decades there have been many penalties imposed for the sole reason of defending US industry (such as the softwood lumber tariffs and Bush-era steel tariffs).  But this is different.  When the Department of Commerce took questionable tariff action in the past, it did so under the guise of making “fairer” market conditions and had some evidence that globalization was not treating some American companies well.  With Boeing’s successful claim, this “tradition” of ignoring the tenets of the free market that America has campaigned for internationally to save its own corporations, loses what little merit it ever had.  This is worrisome, for it could signal that crying wolf and tattling on smaller non-American firms may become more commonplace.  Such behaviour works against goals of treaties like the North American Free Trade Agreement and could foreshadow even more trouble to renegotiation.  Couple that with a protectionist president whose ability to lead and look at the big picture has still not been proven and it looks like this aviation dispute may just be the tip of the iceberg.  And that would not bode well for Canadians.