Fraser Forum

Some good news for Canada—the U.S. follows its own trade rules

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The initial U.S. Department of Commerce decision in October to levy tariff duties of almost 300 per cent on Bombardier’s CSeries jets sold in the U.S. became a major flashpoint in bilateral trade relations and cast an additional pall on the ongoing NAFTA negotiations.

It also highlighted the serious threat to Canada posed by the expressed U.S. preference for trade complaints raised by U.S-based companies to be adjudicated by U.S. courts pursuant to U.S. laws, rather than by independent NAFTA trade dispute resolution tribunals.

While it remains important for Canada’s trade negotiators in the ongoing NAFTA talks to continue to defend Canada’s preference for a strong and expeditious dispute resolution process in any renegotiated NAFTA, a recent ruling by the U.S. International Trade Commission (ITC) is a promising sign that U.S. trade authorities will act responsibly when implementing U.S. trade laws, notwithstanding the irresponsible trade rhetoric of the Trump administration.

Specifically, the ITC provided a Valentine’s Day gift to Bombardier when it concluded this week that Boeing, which initiated the trade complaint against Bombardier, lost no sales or revenue when Delta Air Lines ordered the aircraft in 2016 from Bombardier, and it rescinded the tariff duties imposed on Bombardier. The ITC reasoned that the higher standard seating capacity for Boeing’s 737 airplane models limited competition between those models and Bombardier’s CSeries planes, at least for some customers.

Following the ITC decision, Delta announced it would proceed with plans to buy some of Bombardier’s planes in 2018. While Bombardier’s CSeries planes are currently only made in Quebec, some production is scheduled in a new plant in Alabama after the European company, Airbus, closes a deal to buy a majority stake in the CSeries program. Whether and how the recent ITC decision affects the geographical supply chain arrangements for the CSeries remains to be seen.

It’s also unclear at this moment if Boeing will appeal the ITC ruling. Obviously unhappy with the ITC’s decision, Boeing reiterated its claim that Bombardier receives billions of dollars in illegal government subsidies used to “dump” its aircraft in the U.S. single-aisle airplane market, thereby undercutting Boeing sales. The fact that the ITC ruling was unanimous might discourage Boeing from pursuing further action.

On the other hand, the claim by some that Boeing has willingly spent millions of dollars, to date, pursuing its complaints against Bombardier suggests that Boeing sees substantial commercial value in blocking or delaying sales of the CSeries in the United States. Hence, new initiatives by Boeing, possibly including direct appeals to the White House to exert political influence in any future trade actions Boeing takes, are certainly plausible.

An interesting element of the ITC’s decision is its implicit definition of the relevant product market in the case of the CSeries airplane. Boeing clearly wanted the relevant product market to encompass all “single-aisle” airplanes whereas Bombardier emphasized the small seating capacity of its CSeries planes compared to Boeing’s 737 airplanes, in effect distinguishing between the two types of planes on the basis of differing customer demands. Defining relevant product and geographic markets remains at the heart of competition policy decision-making, and should arguably inform trade dispute decision as well, as was apparently the case in the ITC’s recent decision.

Under the Trump administration’s “America First” policy, there likely will be more trade complaints initiated by U.S.-based companies. Complaints about unfair trade practices, in particular claims of product dumping, intrinsically draw on the same theories and evidence that economists use to evaluate competitor claims of predatory pricing and other anti-competitive practises.

Trade arbitration processes under multilateral (WTO), regional (NAFTA) and bilateral trade agreements would benefit greatly in terms of intellectual coherence and transparency if competition policy criteria and precedents were incorporated more directly and explicitly into trade dispute resolution procedures.

This is an initiative that Canadian negotiators might pursue more vigorously in the ongoing NAFTA negotiations, as well as other pending (TPP) and future trade agreements.