U.S. government officials on Thursday are set to begin investigating Boeing Co's (BA.N) unfair trade claims against Canadian rival Bombardier (BBDb.TO), a two-track action that could lead to U.S. duties on Bombardier's new jetliner and also pits Boeing against Delta Air Lines Inc (DAL.N).

The U.S. Commerce Department is poised to announce the launch of its investigation. U.S. International Trade Commission (USITC) staff will hear testimony from both companies and from Bombardier customer Delta in the case.

Boeing alleges that Bombardier's new 100-150 seat CSeries jetliners are being dumped below cost in the U.S. market and are unfairly subsidized by Canadian taxpayers. Delta agreed last year to buy dozens of CSeries planes at a price that Boeing says was well below Bombardier's cost and risks eroding future sales of its 737 and new 737 MAX narrowbodies.

Bombardier has countered that the petition would have a serious impact on airlines, innovation and competition in the aerospace industry.

The case has increased trade tensions between the United States and Canada - along with disputes over Canadian softwood lumber and U.S. milk protein products - as both countries prepare for a possible renegotiation of the North American Free Trade Agreement under the "America First" trade policy of U.S. President Donald Trump.

The Commerce Department is expected to proceed with the antidumping and antisubsidy claims, trade lawyers and experts said.

"Commerce is going to go forward, there’s no doubt about it," said William Perry, a Seattle-based trade lawyer and a former USITC staff attorney.

The investigation is the latest to hit Bombardier after Brazil launched a trade dispute against Canada at the World Trade Organization, similarly alleging unfair competition.

Brazilian officials welcomed the U.S. probe as support to the South America country's claim that Canada's support for Bombardier's CSeries undercuts the market for commercial jets made by Brazilian rival Embraer (EMBR3.SA).

A Commerce Department investigation into Boeing's claims could be cut short if the USITC rejects it in a vote expected on June 12. If the trade body allows the probe to continue, the Commerce Department would then need to determine any preliminary anti-subsidy duties by around July 22, with a deadline for preliminary anti-dumping duties around Oct. 3. The Commerce Department last month began collecting duties averaging 20 percent on imports of Canadian softwood lumber, saying that the product's origin from public land amounted to an unfair government subsidy.

Boeing said in its petition that Bombardier, determined to win a key order from Delta after losing a competition at United Airlines (UAL.N), had offered its planes to the airline at an "absurdly low" $19.6 million each, well below what it described as the aircraft’s production cost of $33.2 million.

Bombardier has dismissed Boeing's $19.6 million figure as "absurd."

Boeing's 737-700 model, similar in size to the larger CSeries CS300 jet, has a current list price of $82.4 million, with the new 737-MAX 7 priced at $92.2 million. Sales discounts from list prices are typically 40 percent to 50 percent in the industry.

Boeing has said it competed for last year's Delta order against the CSeries CS100 with used 717s, which it no longer makes, and used jets from Embraer since Delta was only ready to pay a low price and wanted smaller jets than its more modern 737.

In April 2016, Bombardier won the Delta order, its biggest yet, for 75 CS100 jets, worth an estimated $5.6 billion based on the list price of about $71.8 million.

In its complaint against Bombardier, Boeing argued that the CSeries program would not exist without hundreds of millions of dollars in launch aid from the governments of Canada, Quebec and Britain, or a $2.5 billion equity infusion from Quebec and its largest pension fund in 2015.

If Commerce's investigation finds that duties on the Bombardier aircraft are warranted, those would likely be imposed on Delta. Representatives for the airline are scheduled to appear at Thursday's hearing to oppose Boeing's call for duties.

"Delta is no pushover," said Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics, said of the Atlanta-based carrier. "They'll have the Georgia delegation behind them, and likely a lot of others in Congress."

 

Source:reuters.com

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