October 6, 2017 3:49PM

With Back‐​to‐​Back Bombshells, Trade Terrorism Hits the Global Aircraft Industry

This afternoon, the U.S. Department of Commerce announced the preliminary results of its antidumping investigation in large civil aircraft from Canada, launched at the request of the Boeing Company in May. Commerce “calculated” dumping margins of 79.82 percent for Bombardier—the only Canadian aircraft producer in this market—which becomes the rate of duty that any U.S. purchaser would have to post with U.S. customs upon importation. This penalty comes on top of last week’s assessment of 219.63 percent subsidy margins in the companion countervailing duty case.

It goes without saying that neither Delta Airlines (the intended customer) nor any other U.S. carrier is going to pay a 300 percent tax to purchase these aircraft. Unless the U.S. International Trade Commission rules in February 2018 that Boeing is not threatened with material injury by these proposed Bombardier sales, the orders will go into effect (requiring approximately 300 percent duties, although those figures will change—but probably only slightly—between the Commerce preliminary and final), putting the U.S. market out of reach to Bombardier, and Bombardier aircraft out of reach to the U.S. carriers, who need these smaller planes (which Boeing doesn’t even produce) to serve less-travelled routes efficiently.

In a previous post, I described some of the methodological shenanigans that Commerce was likely to perform in this case. Confirmation of those and other capricious decisions will be possible after the official analysis memo is released.  But, if the ITC finds “threat of material injury” to Boeing by reason of these “unfair” prospective Bombardier sales, and AD and/or CVD orders are imposed, in all likelihood, there will be some major issues that Bombardier or Delta will want the U.S. Court of International Trade (or a NAFTA Chapter 19 panel) to review and determine whether Commerce acted beyond its authority.

Even if the ITC goes negative in February—finds no threat of injury—the market for the next 5 months will be in a state of suspended animation.  Uncertainty will rule.  Bombardier will not know how to proceed.  Should it build the aircraft in anticipation of exoneration?  Should it seek other markets? Will it be able to service its debt and keep its workforce? Delta and the other airlines will have to put off plans to modernize their fleets, while remaining unable to perform reliable cost-benefit analyses. The specter of a long adjudicative process offers only distant relief, with plenty of distortions and inefficiencies to endure in the interim.

The U.S. trade laws are a form of economic terrorism. They are deployed unexpectedly and with stealth; they cripple their intended targets, while generating enormous amounts of collateral damage to other companies, industries and jobs; and they cast a long shadow of uncertainty over the costs and conditions of operating in the market prospectively. 

Maybe the political and economic fallout from this case will bring scrutiny of these laws to the level they have long deserved.

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