WTO Creates Panel To Examine C Series at Behest of Brazil

 - September 29, 2017, 10:19 AM

The World Trade Organization on Friday established a panel to investigate charges by the government of Brazil that the Bombardier C Series received improper subsidies on several levels from the province of Quebec and the Canadian federal government. The decision comes only days after the U.S. Commerce Department proposed levying a 220-percent tariff on deliveries of the new narrowbody to Delta Air Lines.

The WTO panel results from a failure on the part of Brazil and Canada to reach a consensus during a consultation process this past March. The Brazilian authorities cited a $2.5 billion injection of provincial funds by the government in Quebec during 2016 alone and “indications” that the Canadian federal government plans soon to contribute significant capital to ensure artificially low prices for the C Series narrowbody. In all, Brazil initially claimed that Bombardier has received more than $4 billion worth of illegal subsidies. The WTO panel has agreed to examine programs worth $3 billion.

“We believe that the decision of the Commerce Department reinforces the Brazilian Government's claim in the panel opened today at the WTO,” said Embraer CEO Paulo Cesar Silva. “The Canadian company has received subsidies from local governments that have allowed Bombardier to sell its aircraft at artificially low prices. These subsidies, which have been fundamental to the development and survival of the C Series program, are an unsustainable practice that distorts the entire global market, harming competitors at the expense of Canadian taxpayers. In order to ensure that competition in the commercial aviation market continues to be between companies, and not governments, it is essential to restore a level playing field, respecting fair trade conditions.”

The Commerce Department determination stems from a complaint filed by Boeing with the International Trade Commission in April that Bombardier sold the narrowbody jets for well below their cost of manufacture with the help of improper subsidies. Bombardier has vigorously contested both the basis of the claims and the cost estimates provided by Boeing in its complaint. The U.S. company claims Bombardier sold the airplanes for $19.6 million each, or some $13.8 million less than they cost to manufacture.

“The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion-dollar aircraft programs,” said Bombardier in a statement following the Commerce Department’s announcement. “This result underscores what we have been saying for months: the U.S. trade laws were never intended to be used in this manner, and Boeing is seeking to use a skewed process to stifle competition and prevent U.S. airlines and their passengers from benefiting from the C Series.”

Delta’s order came six months after the province of Quebec agreed to infuse $1 billion in the financially strapped C Series program, giving it a 49.5-percent stake in a limited partnership with Bombardier. Less than a year later the Canadian federal government agreed to grant Bombardier C$372.5 million ($301 million) in interest-free loans for both the C Series and the Global 7000 business jet.