MONTREAL/NEW YORK (Reuters) - The U.S. Commerce Department on Tuesday slapped preliminary anti-subsidy duties on Bombardier Inc’s CSeries jets after rival Boeing Co accused Canada of unfairly subsidizing the aircraft, a move likely to strain trade relations between the neighbors.

The department said it imposed a steep 219.63 percent countervailing duty on Bombardier’s new commercial jets after it made a preliminary finding of subsidization. Boeing has complained the 110-to-130 seat aircraft were dumped below cost in the U.S. market last year while benefiting from unfair subsidies.

An April 2016 order for 75 CSeries jets from Delta Air Lines stemmed from the same harmful sales practices European rival Airbus SE employed to win business in the 1990s, according to Boeing.

The Commerce Department’s penalty against Bombardier will only take effect if the U.S. International Trade Commission (ITC) rules in Boeing’s favor in a final decision expected in 2018.

“We strongly disagree with the Commerce Department’s preliminary decision,” Bombardier said in a statement, calling the magnitude of the proposed U.S. duty “absurd.”

Commerce’s announcement and accompanying fact sheet on the preliminary duty order did not provide any rationale or methodology for how it calculated the 220 percent duty.

The CSeries starts at $79.5 million, according to list prices, but carriers usually receive discounts of about 50 percent.

If imposed, the duties would more than triple the cost of a CSeries aircraft sold in the U.S. to about $61 million per plane, based on Boeing’s assertion that Delta received the planes for $19 million each. Bombardier has disputed the $19 million sales figure.

There are not that many Commerce countervailing orders that are this high, but it is lower than the 256 percent final duties slapped on Chinese cold-rolled steel last year.

The timing is awkward because Canada and the United States are in a three-way negotiation involving Mexico to modernize the North American Free Trade Agreement..

A source familiar with the Canadian government’s thinking said the Boeing trade dispute was “separate” from the NAFTA talks.

“This in no way is part of our conversation” the source said. “People should not read too much into this piece today.”

The spat between Boeing and Bombardier has snowballed into a bigger fight this month when British Prime Minister Theresa May asked President Donald Trump to intervene in the dispute to help protect jobs in Northern Ireland, where Bombardier is the largest manufacturing employer..

The United States has also faced opposition from a handful of American carriers and elected officials over potential U.S. job losses.

Canada’s foreign affairs minister Chrystia Freeland said Bombardier CSeries components are supplied by American companies that support almost 23,000 jobs in U.S. states, including Connecticut, Florida and New Jersey.

“This is clearly aimed at eliminating Bombardier’s C Series aircraft from the U.S. market,” Freeland said. She added that Canada strongly disagrees with the anti-dumping and countervailing duty investigations.

Boeing said in a statement that the dispute “has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements.”

Bombardier’s was unwilling to swallow the extra cost for airlines if the United States slaps duties on its CSeries jet, Reuters reported on Tuesday, citing people familiar with the matter.

“We are confident...no U.S. manufacturer is at risk because neither Boeing nor any other U.S. manufacturer makes any 100-110 seat aircraft that competes with the CS100,” Delta said in a statement.

Duties could chill U.S. sales of the fuel-efficient CSeries, raising concerns over future orders and jobs in Canada and the United Kingdom.

Canadian Prime Minister Justin Trudeau had put his government’s planned purchase of Boeing Super Hornet fighter jets on hold because of the trade dispute, saying it could not “do business with a company that’s busy trying to sue us and put our aerospace workers out of business.”

‘NOT A SLAM DUNK’

Boeing has argued that the military sale to the Canadian government and its petition against Bombardier are not linked. But the U.S. jetmaker has said the CSeries would not exist without hundreds of millions of dollars in launch aid from the governments of Canada and Britain, or a $2.5 billion equity infusion from the province of Quebec and its largest pension fund in 2015.

To win its case before the ITC, Boeing must prove it was harmed by Bombardier’s sales practices, despite not using one of its own jets to compete for the Delta order, Dan Pearson, a senior fellow at the libertarian Cato Institute think tank in Washington, said before Tuesday’s announcement.

The Bombardier factory is seen in Belfast, Northern Ireland September 26, 2017. REUTERS/Clodagh Kilcoyne

“This (ITC case) cannot be a slam dunk,” said Pearson, a former ITC chairman. “I’m having a hard time figuring out how Boeing was harmed by this.”

Canada has pushed to settle the dispute. But one industry source said Boeing, which could gain some leverage with the Commerce Department’s initial decision in its favor, sees the possible CSeries dumping as a long-term threat to its civilian airliner business.

Bombardier stock has fallen about 15 percent over the past month on uncertainty around the duties and a rail venture. On Tuesday, Bombardier missed out an opportunity to strike a rail deal with Siemens, when the German company decided to combine its rail operations with French group Alstom.</s>A combination photo of a Boeing 737 MAX before the opening of the 52nd Paris Air Show at Le Bourget airport near Paris on June 16, 2017, and shareholders line up to view Bombardier’s CS300 aircraft following their annual general meeting in Mirabel, Quebec on April 29, 2016. (Reuters Photographer/Reuters)

The U.S. government moved to impose tariffs on Canadian-made jetliners Tuesday when it ruled in favor of a complaint by U.S. aircraft maker Boeing that claimed rival Bombardier is receiving unfair government subsidies.

The Commerce Department suggested that the tariffs could be as high as 219 percent. The action threatens to further inflame trade tensions between the two North American neighbors. Earlier this year, Commerce moved to impose new duties on the import of Canadian soft lumber, and President Trump has signaled his interest in renegotiating the terms of the North American Free Trade Agreement (NAFTA), which involves Mexico, the United States and Canada.

Bombardier has sold aircraft to U.S. airlines for decades. But Boeing's complaint follows a multibillion-dollar deal struck between Bombardier and Atlanta-based Delta Air Lines for 75 C series CS100s, a commercial jet that seats about 100 passengers.

Following the deal, Boeing formally asked Commerce to investigate what it called illegal Canadian government subsidies and unfair pricing practices that allegedly have given Bombardier an unfair advantage as it competes for business in the United States.

"Without bailout money from Ottawa and the Quebec provincial government [Bombardier] would probably be bankrupt," said Loren Thompson, a defense consultant whose think tank receives funding from Boeing. "What Boeing is really saying here is that Bombardier has an unfair advantage because Canadian taxpayers are covering part of its cost."

Bombardier is slated to begin delivering the planes next year, and any new duties imposed by the Commerce Department would apply to the present Delta-Bombardier deal, which was reached in 2016. The exact amount of any new tariffs is unlikely to be finalized until early next year. Even then, Canada could potentially pursue a case against the United States at the World Trade Organization.

A decision ultimately to impose tariffs could have ripple effects in Northern Ireland, where Bombardier has about 4,000 employees.

The Trump administration did not take an official position on the matter before Tuesday evening's trade decision. But British and Canadian leaders have publicly urged the Trump administration not to impose tariffs.

The Guardian reported this month that British Prime Minister Theresa May raised the issue privately with President Trump after coming under political pressure in Britain. And Canadian Prime Minister Justin Trudeau suggested this month that his government might retaliate directly against Boeing through decisions on military purchasing agreements. The Canadian military is considering whether to buy Boeing's F-18 Super Hornets for the Canadian military, and Trudeau suggested in a Sept. 18 news conference that he would abandon the purchase as a result of Boeing's complaint against Bombardier.

"We won't do business with a company that's busy trying to sue us and put our aerospace workers out of business," Trudeau said in the news conference.

Some have questioned why Boeing would wade into international geopolitics in the first place. Richard Aboulafia, an aerospace industry analyst with the Teal Group, described Boeing's action as a "self-inflicted wound" that could damage the company's business relationships with the Canadian military and with Delta.

"This is a dangerous moment for Boeing," Aboulafia said. "They clearly saw this as an opportunity to walk in tandem with Donald Trump and appeal to his nationalist economic base."

In a statement, Bombardier called the proposed 219 percent tariff "absurd and divorced from the reality" of how multibillion-dollar aircraft programs are typically financed.

"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," Bombardier's statement said.

Boeing hailed the decision.

"Global trade works only if everyone plays by the rules that we've all endorsed to ensure fair competition, as adjudicated by independent national and international bodies," Boeing said in a statement. "This dispute has nothing to do with limiting innovation or competition, which we welcome. Rather, it has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements."

The move follows another trade dispute between the United States and its northern neighbor. For years, the United States lumber industry had complained that because Canadian lumber is subsidized by the government, the imports make it difficult for U.S. companies to compete. Over the summer, the Trump administration called for tariffs on imports of softwood lumber. Commerce Secretary Wilbur Ross said at the time that he was optimistic that the countries would be able to "reach a negotiated solution," and the Commerce Department recently announced a delay in proceedings to work one out.

Still, the Trump administration has generally taken a one-on-one stance toward trade, threatening to remove the United States from multinational regional accords such as NAFTA. But that has received pushback, including from Thomas Donohue, the president and chief executive of the U.S. Chamber of Commerce, who wrote in an op-ed in the Wall Street Journal this week that, "quitting NAFTA would be an economic, political and national-security disaster."

Christian Davenport contributed to this report.</s>The U.S. Commerce Department on Tuesday slapped preliminary anti-subsidy duties on CSeries jets made by Bombardier Inc after rival Boeing Co charged that the aircraft were unfairly subsidized by Canada.

The department said it imposed a 219.63 percent countervailing duty on Bombardier's new commercial jets after it made a preliminary finding of subsidization. Boeing has complained the 110-to-130 seat aircraft were dumped below cost in the U.S. market last year while benefiting from unfair subsidies.

An April 2016 order for 75 CSeries jets from Delta Air Lines stemmed from the same harmful sales practices European rival Airbus SE employed to win business in the 1990s, according to Boeing.

The Commerce Department's penalty against Bombardier will only take effect if the U.S. International Trade Commission (ITC) rules in Boeing's favor in a final decision expected in 2018.

The CSeries starts at $79.5 million, according to list prices, but carriers usually receive discounts of about 50 percent.

Subsidy-related duties would add considerably to the cost of the jets within the U.S. market and prices could rise even further if Commerce announces additional anti-dumping duties in a ruling expected early next month.

Bombardier, which has repeatedly denied Boeing's allegations, was not immediately available for comment.

Boeing said in a statement: "This dispute has nothing to do with limiting innovation or competition, which we welcome. Rather, it has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements."

Duties could chill U.S. sales of the fuel-efficient CSeries, raising concerns over future orders and jobs in Canada and the United Kingdom. Bombardier is the largest manufacturing employer in Northern Ireland.

Canadian Prime Minister Justin Trudeau recently put his government's planned purchase of Boeing Super Hornet fighter jets on hold because of the trade dispute, saying it could not "do business with a company that's busy trying to sue us and put our aerospace workers out of business."

Boeing has argued that the military sale to the Canadian government and its petition againstBombardier are not linked. But the U.S. jetmaker has said the CSeries would not exist without hundreds of millions of dollars in launch aid from the governments of Canada and Britain, or a $2.5 billion equity infusion from the province of Quebec and its largest pension fund in 2015.

To win its case before the ITC, Boeing still faces the challenge of proving it was harmed byBombardier's sales practices, despite not using one of its own jets to compete for the Delta order, Dan Pearson, a senior fellow at the libertarian Cato Institute think tank in Washington, said before Tuesday's announcement.

"This (ITC case) cannot be a slam dunk," said Pearson, a former ITC chairman. "I'm having a hard time figuring out how Boeing was harmed by this."

Canada has pushed to settle the dispute. But one industry source said Boeing, which could gain some leverage with the Commerce Department's initial decision in its favor, sees the alleged CSeries dumping as a long-term threat to its civilian airliner business. (Reporting by Allison Lampert in Montreal and Alwyn Scott in New York; Editing by Tom Brown and Peter Cooney)</s>Sept 27 (Reuters) - Delta Air Lines Inc's chief executive on Wednesday characterized as "bizarre" the claim by Boeing Co that rival planemaker Bombardier Inc is doing business unfairly and said he does not expect the U.S. government to impose stiff duties on the Canadian jets.

The U.S. Commerce Department on Tuesday slapped preliminary anti-subsidy duties on Bombardier CSeries jets after Boeing accused Canada of unfairly subsidizing the aircraft, a move likely to strain trade relations between the neighbors.

The CEO of Delta, which ordered 75 CSeries jets in April 2016, made the statement at the Skift Global Forum in New York.

The preliminary duty of 220 percent is subject to a final ruling by the U.S. International Trade Commission in 2018.

"How this is somehow a U.S. trade dispute is bizarre," Delta CEO Ed Bastian said, adding that Boeing's claims were the "ultimate hypocrisy" given the company's supply deals with Gulf carriers.

Boeing said that the duties were decided by "independent third parties" through a "transparent, fact-based investigation." The world´s biggest plane maker also said that the decision confirmed that Bombardier received "massive illegal subsidies" that allowed it to sell the CSeries in the United States at prices below cost.

Bastian did not say whether the high duties would affect Delta's decision to go through with its order of planes, but added, "We do not think there will be a 220 percent tariff when it's all said and done." (Reporting by Alana Wise in New York, Alwyn Scott in Seattle and Ankit Ajmera in Bengaluru; Editing by Savio D'Souza and Matthew Lewis)</s>Bombardier Inc. is facing one of its biggest crises in years after a punitive ruling from the U.S. threatened to make the Canadian manufacturer’s key CSeries jet all but unsellable and its train operations were left isolated by a deal between European rivals.

Prospects for the Bombardier CSeries, which cost at least $6 billion to develop, were hobbled by the U.S. Commerce Department’s preliminary decision to levy import duties of 220 per cent over claims of improper subsidies. The plane has already struggled to compete with Boeing Co.’s 737 (NYSE: BA), and the move threatens to upend deliveries due next year to Delta Air Lines Inc. (NYSE: DAL), which ordered at least 75 jets with a list value of more than $5 billion.

On the rail side, Bombardier (TSX: BBD.B) was left out in the cold as hours before the Commerce Department’s announcement, Germany’s Siemens AG and France’s Alstom SAagreed to merge their rail businesses in a deal that gives rise to a European transportation giant better able to counter competition from China.

As it vies with Asian giants including Beijing-based CRRC Corp. and Hitachi Ltd. of Japan, Bombardier’s biggest business will now need to battle with a French-German competitor with 15 billion euros ($18 billion) in combined sales. Bombardier had become the largest western trainmaker following the 2001 purchase of Daimler AG’s Germany-based Adtranz arm.

With rail operations undersized and Boeing prompting the U.S. jet penalties, Bombardier chief executive officer Alain Bellemare has fresh hurdles as he tries to turn around the company and end reliance on financial support from Quebec and Prime Minister Justin Trudeau’s federal government.

The CSeries came in more than two years late and about $2-billion over budget. With the exception of a two-aircraft order from Air Tanzania in December, Bombardier hasn’t booked a major sale of the model since the Delta deal in April 2016. The U.S. move sours prospects further in the world’s largest aviation market.

“We believe the key area of concern will be what Delta does with its order,” Walter Spracklin, an analyst at RBC Capital Markets, said in a note to clients. “Moreover, the impact on other U.S.-based airlines will also be in question under such a ruling.”

The Bombardier-Boeing spat is roiling trade relations just as the U.S. tries to renegotiate the North American Free Trade Agreement with Canada and Mexico.

“Even our closest allies must play by the rules,” U.S. Commerce Secretary Wilbur Ross said in announcing the decision on Canadian jets with 100 to 150 seats. Canada “strongly disagrees” with the U.S. probes into its aerospace industry, Foreign Affairs Minister Chrystia Freeland said in a statement.

“This is clearly aimed at eliminating Bombardier’s CSeries aircraft from the U.S. market,” said Freeland, who was scheduled to dine with U.S. Trade Representative Robert Lighthizer in Ottawa on Tuesday during the third round of NAFTA talks.

The import duties could be reversed by the U.S. International Trade Commission if the trade tribunal determines that Boeing wasn’t injured by Bombardier’s jet program. That decision is expected to be made next year. Trudeau has said the Canadian government won’t buy Boeing military jets unless the company drops its case against Bombardier.

The Montreal-based manufacturer said Boeing was “seeking to use a skewed process to stifle competition and prevent U.S. airlines and their passengers from benefiting from the CSeries.” The aircraft entered commercial service last year in Europe.

“The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion-dollar aircraft programs,” Bombardier said in a statement.

Boeing has accused Bombardier of selling its biggest jet in the U.S. at less than fair value, while benefiting from unfair government subsidies in Canada. The U.S. planemaker has argued that the CSeries wouldn’t exist without the assistance, noting that Bombardier received money from the Canadian and Quebec governments to develop the aircraft and further aid from both in recent years to shore up the company’s finances.

“The U.S. Department of Commerce on Wednesday affirmed that Bombardier has taken massive illegal subsidies in violation of existing trade law,” Boeing said in an emailed statement. The process is part of “the longstanding, transparent course for examining and addressing situations where products are ‘dumped’ into the United States at below-cost prices for the purposes of gaining market share.”

The Commerce Department is expected to decide by Oct. 4 whether to also impose anti-dumping duties on the CSeries. On that matter, Boeing is seeking duties of about 80 per cent.

Delta noted the decision is “preliminary” and said the real ruling will come early next year, when the International Trade Commission makes a final determination of whether any U.S. manufacturer will be harmed by imports of the plane. In June, the ITC made a preliminary ruling that Boeing, maker of the 737 narrow-body, may have been harmed by Bombardier.

“We are confident the USITC will conclude that no U.S. manufacturer is at risk because neither Boeing nor any other U.S. manufacturer makes any 100-110 seat aircraft that competes with the CS100,” Delta said in a statement.

The Atlanta-based airline agreed to buy at least 75 of the CS100 planes, the smaller CSeries variant. Delta has been preparing to take delivery of the jets in the spring, and was expected to allow pilots to bid on flying assignments in the coming months. Those and other preparations will continue, Delta spokesman Morgan Durrant said.

But other potential U.S. buyers of the CSeries are likely to think twice before placing any orders in the immediate future.

“This is just a preliminary decision, so this will be a risk overhang on the program for some time,” said Chris Higgins, an analyst at Morningstar. “That might impede sales efforts, which are already pretty slow.”
• Bombardier bruised on two fronts with threats to trains, planes</s>MONTREAL/NEW YORK (Reuters) – The U.S. Commerce Department on Tuesday slapped preliminary anti-subsidy duties on Bombardier Inc’s CSeries jets after rival Boeing Co accused Canada of unfairly subsidizing the aircraft, a move likely to strain trade relations between the neighbors.</s>MONTRÉAL, QUÉBEC–(Marketwired – Sept. 26, 2017) - (TSX:BBD.A)(TSX:BBD.B)(OTCQX:BDRBF) - “We strongly disagree with the Commerce Department’s preliminary decision. The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion-dollar aircraft programs. 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.

The simple truth is that Bombardier created a superior aircraft that is more efficient, more comfortable, and quieter. The C Series serves a market segment not supported by any U.S. manufacturer. Delta wants to bring this remarkable new aircraft to the U.S. flying public. Boeing wants to prevent U.S. passengers from realizing these benefits, irrespective of the harm that it would cause to the U.S. aerospace industry and the cost to airlines and consumers.

Looking beyond today’s and next month’s preliminary decisions, the International Trade Commission will determine next year whether Boeing suffered any injury from the C Series. Because Boeing did not compete at Delta and because Boeing years ago abandoned the market the C Series serves, there is no harm.

There is wide consensus within the industry on this point, as well as a growing chorus of voices, including airlines, consumer groups, trade experts, and many others who have come forward to express grave concerns with Boeing’s attempt to force U.S. airlines to buy less efficient planes with configurations they do not want and economics that do not deliver value.

The U.S. government should reject Boeing’s attempt to unfairly tilt the playing field in its favor and to impose an indirect tax on the flying public through unjustified import tariffs.”

Bombardier is the world’s leading manufacturer of both planes and trains. Looking far ahead while delivering today, Bombardier is evolving mobility worldwide by answering the call for more efficient, sustainable and enjoyable transportation everywhere. Our vehicles, services and, most of all, our employees are what make us a global leader in transportation.

Bombardier is headquartered in Montréal, Canada and our shares are traded on the Toronto Stock Exchange (BBD). In the fiscal year ended December 31, 2016, we posted revenues of $16.3 billion. News and information are available at bombardier.com or follow us on Twitter @Bombardier.

Bombardier and C Series are trademarks of Bombardier Inc. or its subsidiaries.</s>The U.S. government has imposed punishing duties on imports of Bombardier's C Series planes into the United States, a move that threatens to exacerbate trade tensions between the two countries and undermine sales prospects for the Canadian company's most important aircraft.

In a preliminary decision issued Tuesday, the U.S. Department of Commerce ruled to put in place countervailing duties of nearly 220 per cent on C Series airliners, siding with Chicago-based Boeing Co. in its complaint against Montreal-based Bombardier Inc. Commerce will issue a final ruling on the matter in coming weeks, at which time the duties would go into effect.

"The U.S. values its relationship with Canada but even our closest allies must play by the rules," Commerce Secretary Wilbur Ross said in a statement. "The subsidization of goods by foreign governments is something that the Trump administration takes very seriously and we will continue to evaluate and verify the accuracy of this preliminary determination."

Bombardier said it disagreed with the ruling. The duties imposed are even higher than those asked for by Boeing.

"The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion-dollar aircraft programs," Bombardier said. "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."

The development was one of two Tuesday that increase pressure on Bombardier's turnaround effort. In the other, German train maker Siemens AG announced plans to merge with French train maker Alstom SA to create a pan-European rail juggernaut, setting aside a separate merger proposal from Bombardier. The tie-up significantly narrows the strategic options for Bombardier's own train business as it seeks greater scale to compete against Chinese giant CRRC Corp.

Commerce's decision immediately throws into question whether Delta Air Lines will move forward with its deal to buy 75 C Series planes. The Atlanta, GA-based airline's order, which will see the first of those C Series delivered next year, was a key sale that cemented the airliner's viability by showing the market that a marquée customer was interested enough to buy it.

The ruling could also hurt Bombardier in its ability to secure further orders for the C Series, not only in the United States but also elsewhere. The flagship aircraft is the company's big bet to drive revenue in its commercial aerospace business over the next two decades and getting it to market at a cost of $6-billion (U.S.) nearly bankrupted it. Although the aircraft is widely considered a technical achievement and has won praise from early operators, winning new C Series sales has been difficult for the Canadian plane maker as rivals move aggressively to stop the 100 to 150-seat airliner before it grabs a solid toe-hold internationally.

"The really critical issue here is what pricing and profitability are they going to be able to achieve on [the C Series] program" if rivals are using whatever tools they can to prevent Bombardier from making major sales, said David Tyerman, an analyst at Cormark Securities.

The C Series is essentially sold out through 2020 based on orders received so far from carriers including Deutsche Lufthansa AG subsidiary Swiss and Korean Air. Bombardier is in talks with China's three biggest airlines and leasing businesses on buying the C Series and aims to close deals ahead of a trip to China next month by Canadian Prime Minister Justin Trudeau, a company official told Reuters.

U.S. airlines might be unwilling to strike a deal for C Series planes as long as the threat of duties looms, analysts at RBC Capital Markets say. And non-U.S. carriers might stall for the same reason or try to squeeze Bombardier for steeper pricing discounts if they sense the plane maker is more desperate for orders given the impediments selling into the United States. Bombardier hasn't booked a major order for the C Series since the Delta deal in April 2016.

"You take the U.S. market out of the demand side because of expensive duties and it becomes hard to get the right price elsewhere," said Fadi Chamoun, an analyst with Bank of Montreal. For the C Series business case to work, Bombardier needs to supply 100 planes a year, he said. Analysts have estimated the United States would account for about 35 per cent of that demand.

"The C Series was designed at the outset for the U.S. market" and thinner routes where airlines are operating planes that are too big, said Mehran Ebrahimi, an aerospace specialist at the Université du Québec à Montréal. "If the door is shut to selling the plane into the United States, that's a problem."

Commerce's decision stems from a petition filed earlier this year by Boeing. In it, the U.S. plane maker alleges that the Canadian company sold the 75 C Series planes to Delta at "absurdly low prices" while benefiting from unfair subsidies from the Canadian, Quebec and British governments. It asked the U.S. government to impose countervailing and anti-dumping duties on C Series planes imported into the United States.

Ottawa earlier this year pledged $372.5-million in "repayable contributions" to Bombardier to help finance two aerospace development programs, including the C Series. Quebec separately invested $1-billion (U.S.) for a 49.5 per cent equity stake in the C Series program.

Bombardier denies it did anything wrong, saying the financing it received adhere to global trade rules. It argues Boeing wasn't even in the running on the Delta sales competition, doesn't make a plane of that size, and is now is trying to stifle the technological innovation the C Series brings to the industry.

The Trudeau government has threatened to cancel a $6.4-billion contract to buy 18 Boeing-built Super Hornet jets in an attempt to force Boeing to back off. The U.K. and Quebec governments are flexing their political muscle to try to win a settlement with the American plane maker to protect thousands of Bombardier jobs in their jurisdictions. Some U.S. lawmakers have also joined the fray, noting that about half the parts content of the C Series jet is produced in the United States so any ruling against Bombardier has negative consequences for that country as well.

"We're going to continue to defend Canadian aerospace against protectionist and warrantless measures by Boeing and others," Mr. Trudeau told reporters ahead of the ruling Tuesday. "It's clear we won't do business with a company that's attacking us and that wants the layoff of tens of thousands of Canadian workers."

Dunniela Kaufman, a Washington-based trade lawyer who specializes in U.S.-Canada business, said the politicisation of the dispute is unusual: In theory, it's meant to be a straight business case but it has become a pawn in the two countries' trade manoeuvring. "It underlines what bizarre times we are in," she said.

The decision will have ramifications in Northern Ireland where Bombardier is one of the province's largest employers, accounting for about 4,200 direct jobs in Belfast and another 9,000 indirect jobs in various small businesses. Most of the Belfast plant's operation involves work related to the C-Series and that is expected to increase as the company builds more planes to fill upcoming orders.

Tuesday's decision is just one step in a lengthy process. Following this preliminary ruling on countervailing duties, a separate decision is expected around Oct.4 on anti-dumping duties. Final determinations and the issuance of orders to impose the duties are not expected until next year.

To win its case, Boeing will have to prove that it suffered "material injury" from Delta's decision to pick C Series planes. That might be a tough sell given Boeing enjoys an enviable backlog of 4,400 737s and is set to hike production to meet soaring demand. It chose deliberately to abandon the market for the smaller planes that Delta wanted to focus on larger jets.

"Boeing wasn't injured by Bombardier, they were injured by their decision not to serve this market," said Gerard Scimeca, an attorney and vice-president of Consumer Action for a Strong Economy, a free market consumer advocacy group.

While the case continues, the U.S. plane maker will have to deal with the possibility of losing billions of dollars worth of business from Canada – not only for the immediate fighter jet replacement order but also future orders.

With reports from Adrian Morrow, Paul Waldie and Robert Fife</s>TORONTO — Bombardier Inc. shares lost nearly nine per cent in early trading Wednesday as investors weighed the prospect of a 219 per cent duty on U.S. sales of its flagship CSeries passenger jets and the European merger of two railway rivals.

The shares (TSX:BBD.B) lost 20 cents at $2.07 on the Toronto Stock Exchange.

Analysts say the U.S. Department of Commerce’s preliminary duty decision, which was much harsher than expected, raises questions about the future of a key order of CS100 jets by Delta Air Lines as well as future sales to other customers.

Its U.S. rival Boeing Co. had been seeking an 80 per cent duty.

The U.S. Commerce Department on Tuesday ruled in favour of Boeing, which alleged that Bombardier used unfair government subsidies to sell aircraft at artificially low prices. U.S.-based Delta Air Lines, which plans to buy as many as 125 of Bombardier’s new CS100 aircraft, has argued that Boeing doesn’t even make the 100-seat planes it needs.

Prime Minister Justin Trudeau had threatened to stop doing business with Boeing, which is in talks to sell Ottawa 18 Super Hornet jet fighters. British Prime Minister Theresa May took to Twitter Wednesday to say she is “bitterly disappointed” by the U.S. government’s decision. She added that Britain will work with the Montreal-based company to protect jobs, including more than 4,000 in Northern Ireland.

U.S. Commerce Secretary Wilbur Ross said Wednesday to reporters in Hong Kong that the decision was part of playing fair.

“It’s not out of any anti-Canadian or any anti-U.K. or certainly any anti-Northern Ireland sentiment, but even with your friends and even with your allies, you must obey the rules,” Ross said, adding that the decision was preliminary and a final ruling is expected in months. “The consequences are what they will be.”

Analyst Walter Spracklin of RBC Dominion Securities said in a note to clients that Tuesday’s preliminary duty is just one step and a key decision isn’t expected until February when a final ruling is made.

But, he added the possibility of such a large penalty on U.S. sales of the CSeries will hang over Bombardier shares even though they won’t be levied until Bombardier makes its first delivery of a CSeries planes — scheduled to be purchased next year by Delta under a 2016 agreement. Other analysts said the uncertainty could also make it more difficult for Bombardier to negotiate sales of the jet in other foreign markets.

The main area of concern is what Delta does with its order after the U.S. International Trade Commission decides whether Boeing has suffered damages from sales of the CSeries to the airline, Spracklin says.

In a separate note about Bombardier’s commuter rail division, Spracklin says a proposed merger of Germany-based Siemens and France-based Alstom would be “a mild negative for Bombardier,” given that the Canadian company is also reported to have been in talks with Siemens.

“While we believe a merger with Siemens would have been beneficial for Bombardier as it would have led to synergies from operations and R&D, we nonetheless expect Bombardier to remain a key player in addressing the ever-growing market for mass transit solutions worldwide.”</s>WASHINGTON, Sept 27 (Reuters) - The best hope for shielding Canada's Bombardier Inc and its CSeries jetliner customers from massive trade duties imposed by the Trump administration is a little-known commission tucked away next to an expressway in Southwest Washington, DC.

The U.S. Commerce Department on Tuesday slapped preliminary anti-subsidy duties of 220 percent on the jets, which could effectively shut Bombardier out of the U.S. market if upheld, after rival Boeing Co launched a trade challenge accusing Canada of unfairly subsidizing the aircraft.

The U.S. International Trade Commission could effectively throw out the Commerce Department's anti-subsidy duties against Bombardier if it finds that Boeing did not suffer the injuries it has alleged.

The case is outside the parameters of disputes normally handled by the ITC and could test the bipartisan panel's ability to withstand political pressure, U.S. trade experts say.

The preliminary duties imposed by Commerce were far above the 79 percent sought by Boeing and more in line with duties against Chinese state-owned enterprises. The department has more leeway in determining duties against nonmarket economies such as China.

"This should be seen in the context of an administration that really likes protectionism, so the higher, the better," former ITC chairman Dan Pearson said of Commerce duty finding against Bombardier. "They decided to pile it on."

The ITC has rarely ever heard an aircraft case and not one of this magnitude. Normally, the commission deals with trade enforcement cases where a pattern of below-market pricing and injury has been well-established, such as through a flood of dumped imports and lost revenue or closed factories, such as in the steel sector.

"It's very far out of the norm. You're deciding this case on the basis of zero imports," said Georgetown University law professor Jennifer Hillman, a former ITC commissioner and World Trade Organization Appellate Body member.

In the Boeing-Bombardier case, the aircraft in question have not been imported into the United States yet - only ordered by U.S. carrier Delta Air Lines Inc.

A key question the ITC will need to answer is whether the 108-133 seat CS100 competes directly with Boeing's 737-700, which seats 126-149 passengers. Bombardier and Delta argue that Boeing did not offer the 737 for the Delta order.

But the larger 130-160 seat CS300, for which Delta holds options, is closer to the capacity of Boeing's 138-172 seat 737 MAX7 jetliner, according to literature from both companies.

The ITC is normally seen as immune from political influence, with a total of six commissioners who are equally split between Democrats and Republicans. However, the panel currently has only four members, who are scrambling to cope with a bigger workload this year.

The Commerce Department notes in its press releases that it has launched 48 percent more anti-subsidy and anti-dumping investigations under the Trump administration this year compared with last year.

All the commissioners are seasoned trade lawyers appointed by former presidents Barack Obama and George W. Bush. Chair Rhonda Schmidtlein, a Democrat, and two other commissioners have experience working at the U.S. Trade Representative's office, while Republican David Johanson was the international trade counsel with the U.S. Senate Finance Committee.

President Donald Trump has nominated Jason Kearns, a USTR veteran who is now trade counsel to Democrats on the House Ways and Means Committee, to the ITC for a term expiring in 2024, but no confirmation hearing has been scheduled yet. Kearns had been previously nominated by Obama late last year.

Pearson, a trade consultant who recently left the libertarian Cato Institute, said the commissioners will hear arguments from Boeing that he believes will be "pushing the limits" of the ITC's authority.

Past aircraft trade dispute cases have been brought to the World Trade Organization, including years-long fights between Boeing and European rival Airbus SE and Bombardier and Brazilian rival Embraer SA.

"This is outside the normal way of dealing with trade friction in the aircraft sector, where all of the major producers have gotten subsidies," said Chad Bown, a senior fellow and trade expert at the Peterson Institute for International Economics.

"It kind of escalates the need for a grand bargain between companies and countries to limit international aircraft subsidies."
The U.S. Commerce Department imposes preliminary anti-subsidy duties on Bombardier Inc. CSeries jets following American rival Boeing's claims of unfair Canadian subsidies. The penalty is on hold pending the U.S. International Trade Commission's final decision, expected in 2018.