U.S. aerospace giant Boeing succeeded Friday in moving ahead with its aircraft trade complaint against Montreal-based Bombardier. | Getty Boeing decision stokes U.S.-Canada trade tensions

Move over lumber and dairy: There’s a new trade spat that’s ratcheting up tensions between the United States and Canada. And it could put a potentially huge military contract in jeopardy.

U.S. aerospace giant Boeing succeeded Friday in moving ahead with its aircraft trade complaint against Montreal-based Bombardier. Boeing is accusing the Canadian company of selling its new C-Series aircraft to Delta Airlines far below the price of production and is saying that Bombardier benefits from unfair government subsidies from Canada.


The U.S. International Trade Commission voted 5 to 0 in favor of a preliminary finding that says Bombardier’s trade practices are causing injury to Boeing and the domestic aircraft sector.

The case heightens tensions between the U.S. and Canada, and could lead to intervention from both governments and spillover into the coming NAFTA renegotiation.

"Our government will defend the interests of Bombardier, the Canadian aerospace industry, and our aerospace workers," said Alex Lawrence, a spokesman for Canadian Foreign Minister Chrystia Freeland. "Boeing’s petition is clearly aimed at blocking Bombardier’s new aircraft, the C-Series, from entering the U.S. market."

The U.S. investigation of Canadian aircraft imports and the potential for significant retaliatory duties are already having ripple effects.

The Canadian government decided this week to defer a decision to purchase 18 of Boeing’s F/A-18E/F Super Hornet fighter jets. In a defense policy report released Wednesday, Canada said it was “continuing to explore” the acquisition of an interim fighter aircraft, reversing course on what seemed to be a decision to move ahead with setting the terms of the purchase with Boeing.

After the U.S. initiated the Bombardier investigation last month, Freeland said that her government would review military procurement that relates to Boeing because of the case.

"We are reviewing current military procurement that relates to Boeing," her spokesman reiterated Friday after the vote.

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The decision to hold back on the interim purchase creates a high-stakes situation for Boeing as it simultaneously works to defend the domestic commercial aircraft market while also trying to capture a contract for the entire 88 jets Canada hopes to build under its new defense policy to replace its aging fleet, according to Richard Aboulafia, an aircraft industry analyst with the Teal Group.

“Eighty-eight Super Hornets is way more important than the damages Boeing might suffer from competition with the C-Series,” he said, adding that Boeing’s risk-to-reward ratio for filing the case is “just absurd.”

The ITC’s decision doesn’t come as a surprise given the low threshold for a preliminary finding. A U.S. company only has to prove there is a “reasonable indication” that imports are causing injury.

The decision, however, further strains what has been a longtime airtight trading relationship between the two neighboring countries. President Donald Trump’s heightened trade rhetoric has also put new momentum behind petitions from U.S. companies that feel aggrieved by foreign competitors.

“In the current climate of the United States, it’s a no-brainer to use the trade remedy system,” said Peter Clark, an Ottawa-based trade consultant. “This administration is receptive to launching trade disputes.”

Canadian and U.S. officials are already embroiled in the latest chapter of a recurring fight over Canadian softwood lumber imports. The U.S. lumber industry, which filed its case in late November, has already won preliminary retaliatory duties on lumber imports from north of the border. The escalation of that case could lead to finalized tariffs or a negotiated settlement that would establish another period of fraught peace.

Canadian dairy policies have also fallen into Trump’s cross-hairs as a new “ingredients strategy” is starting to cut off U.S. sales of milk protein concentrate — one of the few products U.S. producers are free to sell in Canada’s highly restricted dairy market.

“The Boeing petition is going to get thrown into the basket of mounting issues between Canada and the U.S. That’s only natural,” said Bombardier spokesman Bryan Tucker.

But he argued that any tariffs on the new C-Series are going to directly hurt U.S. workers. More than 50 percent of the narrow-body, single-aisle aircraft’s components — including the engines, cockpit control panels, avionics and brake controls — come from the U.S., he said.

Those facts, however, won’t carry much weight as the ITC and the Commerce Department continue with the investigation. The two agencies will be looking to prove the petition’s claim that Bombardier is “muscling its way into the U.S. aviation market by offering its heavily subsidized planes at cut-rate pricing, to the serious detriment of American workers and The Boeing Company, the only member of the domestic industry.”

Proving that Bombardier’s C-Series sales pose a “severe threat” of material injury to Boeing will be a higher bar to clear. Bombardier hasn’t yet delivered any of the 75 CS100 jets Delta ordered. The Canadian company also argues that Boeing was never in competition for the sales to Delta given that the CS100 is smaller than Boeing’s comparable product, the 737 Max 7.

For a threat of injury, U.S. law lays out at least nine criteria that the ITC must consider. The law also states that a decision shouldn’t be made “on the basis of mere conjecture or supposition.”

Boeing argues that the entry of the CS100 into the U.S. with a supposed price advantage and subsidies could cause major problems in the market for 100- to 150-seat aircraft. The company said in testimony to the ITC last month that it had not had an order for its 737 Max 7 aircraft since 2011.

Boeing is already being squeezed by its bigger rival Airbus in domestic sales of narrow-bodied aircraft. Two weeks after Boeing filed its case against Bombardier, Delta, the world’s second-largest airline, announced that it would expand its orders of Airbus A321-200 aircraft, which are now produced in Airbus’s Mobile, Ala., plant.

Boeing and Airbus have been locked in more than a decade-long legal battle at the World Trade Organization over trade in wide-bodied aircraft. The U.S. and European Union have filed and counter-filed complaints over subsidies and other support each country is accused of providing its aerospace companies.

Boeing’s trade case against Bombardier could see quicker results. The Commerce Department, which sets tariffs in trade complaints, is expected to announce preliminary duties as soon as July, which could chill sales of the C-Series in the U.S. Boeing is alleging that Bombardier’s dumping margins should be 79.8 percent and has calculated its subsidy rates at 79.4 percent.

The move could put a military contract with Canada at risk, but Boeing may see that as a price worth paying for protecting the U.S. market for a major segment of its business.

During testimony last month, Boeing vice chairman Ray Conner argued that Delta’s contract with Bombardier could signal the beginning of the end for the company in the 100- to 150-seat market.

“If you don’t fix it now, it’ll be too late to do something about it later,” Conner said.