Neighborly Bickering: Canada Ups Ante in Trade Battle with US, BoeingCC BY 2.0 / Ronnie Macdonald / Boeing F-18 Super Hornet World02:30 14.12.2017Get short URL640
Disagreements between US President Donald Trump’s administration, the Canadian government and Boeing have escalated to the point where Canada has inserted a “Boeing clause” into its defense procurement policy stating that acquisitions cannot harm the Canadian economy.
The US Commerce Department slapped a nearly 300 percent tariff on Bombardier C Series commercial aircraft, citing Bombardier’s allegedly illegal receipt of government subsidies that allowed the company to dump aircraft into the US market at below market prices. The business-oriented publication Bloomberg calls Bombardier “a crown jewel of Canadian manufacturing.”
In response to the tariff, Canada cancelled a purchase of $5 billion worth of Boeing F/A-18 Super Hornets. “A government should not expect us to buy planes off them if they are attacking our industry,” Canadian Prime Minister Justin Trudeau said September 17. The Canadian government struck a deal to buy 30-year-old F-18s from the Royal Australian Air Force this week instead of the newer Super Hornets.
The latest development in the saga occurred Tuesday, when Canada announced a C$19 billion ($14.8 billion) program to acquire 88 fighter jets. While announcing the program, Canada announced a new policy stating that defense equipment purchases only have to meet military requirements specified by the Canadian government and that firms submitting bids to sell Canada fighters would be at “a distinct disadvantage” if the deal has a substantial impact on Canadian jobs, said Navdeep Bains, Minister of Innovation, Science and Economic Development.
“This new policy clearly demonstrates that we are standing up for Canadian interests,” Bains said, according to Defense News.
Ottawa claims the policy is not simply directed at Boeing and the US, but rather that it is a signal to nations around the world.
Boeing, headquartered in Chicago, disagreed. Company spokesman Scott Day called the new policy the “Boeing clause,” adding that Boeing will “review the future fighter capability project requirements for 88 jets and make a decision at the appropriate time.” Boeing is the largest non-Canadian aerospace firm in Canada, Day said, noting that about 2,000 of Boeing’s workers are based there. According to Defense News, Boeing has said that defense article transactions should be quarantined from civilian aircraft deals.
For its part, Bombardier has claimed that more than 50 percent of the materials for the disputed C Series aircraft are bought from US suppliers, and furthermore than Bombardier’s aerospace division spent more than $2 billion in the US in 2016 alone, Reuters has reported.
The original deal that sparked Boeing’s complaint with the US government concerned Delta’s decision to buy 75 Bombardier’s C Series aircraft for a list price of more than $5 billion. Delta is the only US airliner to have agreed to purchase Canadian-made jets. Chief executive Ed Bastian said in October the company would not pay the “nonsensical” tariff, while also holding his ground in stating he planned to take delivery of the Canadian aircraft.
Although proposed by the Commerce Department, the tariffs must be approved by the US International Trade Commission (ITC) early next year in order to take effect.
Complicating the matters further is Europe’s Airbus October announcement to acquire a controlling stake in the deal to supply Delta, the second largest US airline, with new commercial aircraft. Following the Airbus announcement, Alabama Republican Rep. Bradley Byrne praised the decision, particularly because Airbus plans to open an assembly plant in Byrne’s district, according to Bloomberg. “It’s a huge victory for President Trump and all that he has been trying to do to bring more foreign investment and jobs to America,” Byrne said at the time, noting, “this is not anti-Boeing. It’s pro-America.”
Further, Arizona Senators John McCain and Jeff Flake wrote in a September 28 letter to the ITC that “Bombardier has demonstrated an enduring commitment to the US, and its operations have had an unquestioned positive impact on our economy.”
Trump pointed out the “pretty good trade deficit” with Canada as one of the reasons he has vowed to rip up the North American Free Trade Agreement. According to official data, the issue could not be fuzzier. The US Bureau of Economic Analysis calculated in 2016 that the US had a $7.7 billion trade surplus with Canada, while Statistics Canada data show that Ottawa in fact has a trade surplus with the US of about C$18.8 billion($14.6 billion) — a difference of about $22.3 billion.