Typical. If US can't compete on merits then they typically come up with some contrived reason to levy tariffs in order to cripple anything Canadian that just might be successful. Same thing happened to lumber, dairy, poultry, livestock and anything else that gets made north of the border. In the meantime all those industries are pretty happy to take the pork when and where it is available, Boeing probably more than any other company in the world. So this complaint is about as disingenuous as it gets.
Not that any other country cares one bit about Canada. Even the UK, which has a pretty big stake in this whole thing has kept mum, presumably because they don't want to upset their own future trade deal with the US.
Actually, the UK did warn Boeing that it could lose UK defence contracts over the dispute - Bombardier is a huge employer in NI which is politically vital to the stability of the current UK government:
Indeed, the UK has been very vocal about this. It's been well covered in the Canadian press. The problem is the solution (more like a workaround) the UK offered does nothing to help Canadians and further restricts the marketplace to an even smaller group of companies.
Give me a break, every country is hugely protectionist, Canada as much or more than most. I'm a Canadian consumer who is tired of paying inflated costs on dairy and other Quebec and Ontario products just because of tariffs imposed to buy votes in federal elections.
Despite NAFTA, we also pay huge duties on products shipped from the States; we have a $80 limit on imports while Americans can ship ten times that amount from Canada duty free; once again to protect mediocre Eastern retailers from real competition.
Anti-subsidy rules aren't exactly a totally contrived reason for tariffs. If the American company is working without subsidy, then it's hard to compete on even footing when the Canadian competitor is underwritten by the state. The correct forum for litigating this question is the WTO.
However, this analysis is complicated by Boeing's close relationship with the USG, particularly the military. I've seen the argument that the juicy contracts they get for military aircraft and weapons systems constitute an indirect subsidy for civilian aircraft. To be honest, I lack the expertise to evaluate this objection, so I simply note it for completeness' sake.
Personally, I am skeptical of studies that count tax breaks as subsidies. If the company's BATNA is to go to a lower tax state, surely one cannot count the entire break as a subsidy, as opposed to a necessary cost to retain the company's presence. But, yes, in principle I agree that Boeing is subsidized to some degree or another.
Canada has already made a free trade deal with the EU called CETA, all the more reason to play hard ball with the US during the new NAFTA negotiations.
Which — from my point of view as a Canadian consumer — is neutered by protectionism, as the one EU product I'd really want (decent affordable cheese) is excluded by the powerful Ontario/Québec dairy lobby.
I'm unclear on why / how a 300% tariff on the Bombardier jets would be considered fair or good in any way, for anyone other than Boeing. Is this just classic corrupt lobbying or is there more to it?
However Boeing is also quite subsidized, just more indirectly through defense contracts. And what's more, Boeing doesn't even offer a competitive product. They don't sell any aircraft in this size range.
Boeing is subsidized in many ways, including defense contracts.
Boeing is the largest winner of state and local tax incentives valued in $13 billion. Most of these go to commercial aircraft manufacturing. DoD also awards defense contracts that intend to keep strategic commercial technologies within US (just like all large nations).
Boeing and Airbus have been involved in legal battle over subsidies over a decade. When WTO found that there was only $1 billion in illegal subsidies in 777X development and rest $8 billion were legal subsidies, Boeing was celebrating.
You have to be careful when you see claims of a company receiving $x in subsidies. There is often some questionable accounting which going into computing those numbers. For example, the $64 billion figure from the headline of the first article appears to be mostly from loan guarantees. Loan guarantees are definitely a form of subsidy, but computing their value is not trivial. You need to figure out what the rate would have been without government backing and compare that with what the actual rate was. Simply taking the notional value of the loan, as was done to get the $64 billion figure, vastly overstates the magnitude of the subsidy.
Yep. Every country with an advanced export industry has an Export-Import Bank. Small countries making capital purchases of hundreds of millions of dollars wouldn't be able to secure the financing, otherwise; at least, not at any reasonable rate. The fact that the U.S. Export-Import Bank has never had a net loss (at least, none of note AFAIK) is really all we need to know about how much of an unfair subsidy they're providing: none. IOW, they aren't guaranteeing transactions that aren't economically viable. It's just that, say, Ethiopia has zero chance of not getting gouged by major American or European banks. Among other things, big western banks don't have any appetite for dealing with the risk--currency exposure, foreign liquidation headaches. Even though ultimately they could recover their losses, it would ruin a few quarters of profits and throw their shareholders into fits.
When people argue that Boeing exports make up the bulk of the Export-Import Bank's financing, well, d'uh. For political reasons the bank likes to sell itself as supporting small business, but the fact of the matter is that the global banking industry is competitive enough to finance smaller purchases. The economic function of an Export-Import Bank is to improve the transactional efficiency at the very high-end of the market. More importantly, as an advanced economy the U.S. primarily exports advanced (i.e. extremely costly) capital goods.
Some national export-import banks are primarily in the business of funneling subsidies to domestic exporters. You can tell because they hide huge losses. But that's just not the case in the U.S., Canada, or most of Europe.
That's kind of like arguing that because housing prices have never(!) gone down (pre-2008), housing prices will never go down, and therefore underwriting any mortgage carries 0 risk. It's simply bad math.
I'm not saying it's 0 risk. My point was merely that given the absence of such losses--losses that similar banks (e.g. in China) regularly sustain to support blatant industrial subsidies--then it's a stretch to call it a subsidy given the loaded meaning of that word in both politics and international affairs.
Yes, technically it's a market intervention. But unless someone is prepared to say that the Export-Import Bank is creating a bubble in exports, driving more exports than is economically sustainable, then criticism of the Export-Import Bank is unwarranted. Some economists are prepared to say that. But I think most economists--the ones who aren't ideological radicals--would say that it's a complex question, admit that it's probably serving some useful economic function, and shrug their shoulders. And of course most other people in the industry would absolutely say that it serves useful and necessary function.
One of my teachers in high school was complaining about Boeing being exempt from Washington state sales tax for the sale of...airplanes. Is that a subsidy? I wouldn't count it as such.
For a company with international sales, sales tax (and VAT) should be handled in the district where the sale occurs, not where the product is manufactured. The big problem with the USA is that it doesn't have a VAT system in place to make it all work out equitably.
In effect maybe, but this isn't considered a subsidy on paper though... from my understanding the distinction is "giving" is a subsidy vs "not taking" is a tax break?
That's true, but beyond the jobs there is a legitimate issue of national security. If we're going to have a military at all then that implies we need a domestic aerospace industry capable of producing large aircraft. That capability has to be preserved as a strategic necessity regardless of cost.
Other countries do quite well military-wise, without having domestic aerospace industries. They just buy the planes from other countries that do have them.
Maybe not feasible on a scale such as the US military, but still.
The problem is that this gives other countries a big stick to beat you with, just by refusing to sell you more aircraft or spare parts or whatever. Iran is a case in point. Under the shah, Iran was a US ally, and purchased US aircraft. After the revolution, the US shifted its favour to Iraq and refused to sell spare parts and supplies for the aircraft, severely hampering the Iranian air force. This might not have been such a problem, but Iran was at war with Iraq at the time.
This sort of thing is why most countries are keen to manufacture as much of their military equipment domestically as possible.
Who don't? Governments certainly do. Food is commonly subsidised so that domestic production is maintained. Oil is commodity number one in governments exerting influence to control it. I'm not so sure on computer manufacturing.
Or if not subsidized, then subject to enough import restrictions that domestic producers survive. I'm a pretty hard-core free trader, but in this case I think some restrictions to ensure a local industry make sense. You shouldn't have to starve or freeze just because other countries close the border. Security comes before prosperity or you're partying on the Titanic.
What do you think why, if a German comoany such as Infineon or Aixtron plans to sell parts of their business to the Chinese, the US President gets a veto?
Because you do apply the same logic — it has to be produced by us or our closest allies — to all these industries.
Boing is one of the most subsidized companies in the world. Funny how they have even the courage to point this out against Airbus. This shows that to be a big company it is not enough to get government money, you need to be shameless.
Every news outlet I've read on this states that Boeing proposed used embraer jets to compete with the bombardier c series and has no directly competing aircraft.
In order to have a valid complaint, Boeing had to identify a "Domestic Like Product", which was indeed the 737-700 and 737 MAX 7, capable of carrying 126 and 138 passengers respectively, comparable to the C300's capacity. That part of it is true. The aspect in which boeing's product does not compete is that the 737 is a 50-year-old frame by now, whereas the C300 is a modern and technologically far advanced design. Needless to say, Boeing did not over-emphasise that point in their submission.
Boeing's complaint is actually factually correct and pretty much rock solid. BBD is indeed being subsidised via tax breaks and sweetheart loans from its various interested governments, and it did indeed sell the airframes to Delta at well below cost. The trouble is that Boeing does exactly the same thing all the time.
These kind of tactics are, regrettably, par for the course in competition between Boeing and Airbus. I think the main reason everyone is pissed off at Boeing is not only that the C300 is inarguably a profoundly superior product to Boeing's ageing cash cow, but they're employing their most ruthless "nuclear" legal tactics against a company so much smaller than them, in a friendly, neighbouring country, which is a customer to boot! At the very least, it's not very gentlemanly. It's pretty rich to shriek about "predatory behaviour" from a company a hundredth their size.
Your characterization that the 737 is a 50-year old airframe and wouldn't compete with the CS300 is entirely inaccurate.
Boeing just keeps the same model numbers for a series of aircraft, but through gradual evolution of sub-models the newest 737 MAX that exists today is an entirely different plane from the original 737-100 released in 1966.
Pretty much the only thing that's the same is that the fuselage is the same diameter. Everything else from length, height, wing span, passenger count & even how fast it cruises has changed over the years. It now has over twice the range that it did in 1966.
Secondly just because two aircraft aren't exactly the same size doesn't mean they aren't competing for the same market. As an example no airline sits down and decides they need a plane that carries exactly 150 passengers, and 180 would be out of the question.
Instead they look at the overall price, efficiency etc. Maybe they'll buy a smaller plane and run more flights per day, rather than a bigger plane with fewer flights.
You can trivially see this by looking at the multitude of airframes you can choose to fly with between pretty much any two major international airports.
> Your characterization that the 737 is a 50-year old airframe and wouldn't compete with the CS300 is entirely inaccurate.
Of course the 737 has been updated over the years but it's still fundamentally the same frame and has numerous drawbacks over newer models:
- it's aluminium, not composite, so is much heavier than the C300, meaning worse fuel efficiency per pax, and will have smaller windows, less comfortable cabin air pressure, etc
- it sits too low to the ground to carry the most efficent high-bypass turbofans - again less fuel efficient
- again because it's so low to the ground, the MAX 10 is so tail-heavy some (most?) airlines have passed on it in fear of tailstrikes and load restrictions at the gate
- still not fully fly by wire AFAIK
and the list goes on. You're right that it's been refreshed over the years but even boeing wants to replace it with a clean sheet design, just as the composite 787 has replaced the 767. Advancements have been made and eventually you just need a new frame.
Another factor in favour of the C300 is that it's optimised for its load capacity. The 737-7 (and a318/9 for that matter) are shrinks of their design and thus carry too much wing & superstructure for comparable loads. This again increases weight and reduces cost effectiveness.
Even the mass media has been saying that if the C300 gets a foothold into the US market that Boeing may be forced to invest in a clean sheet new frame to effectively compete, and they're right.
Sure, at the CS100 and CS300 sides Boeing doesn't have any competitive options. But if BBD succeeds into stretching the C-series into the CS500 that very directly competes with Boeing's bread and butter (the 737). The E2 can't be stretched that much. This is why they've gone after BBD and not Embraer.
It's not like the defense department would not be developing and buying jets if Boeing didn't exist. I don't really think of defense business as a subsidy. Though admittedly I'm sure there's plenty of grease money being spread around.
Defense spending isn't supposed to be a direct subsidy, but the DoD does sometimes blatantly choose one product instead of better competing products based on industrial concerns. E.g. that tanker buy where Airbus won the competition, but the DoD reversed it and leaked emails showed that it was done purely to benifit Boeing. Or that the US Army refused to allow the widespread introduction of a modern infantry rifle that isn't made by Colt, forcing the US Marines to designating their new rifle as a "light machine gun".
Every country does this, since having your own defense industry is a massive strategic boon and keeping those high-tech jobs are good for the economy. But it's definitely anti-competitive behavior and the respective defense companies do get a lot more taxpayer money for the capabilities the country gets than would be optimal.
Not always subsidy by itself, but DoD and NASA are used to subsidy Boeing and others. DOD and NASA transfer economic resources to the industry on terms more favorable than available on the market.
Excessive goverment subsidies can destroy competition in otherwise healthy markets (which I wouldn't classify the Boeing/Airbus duopoly as to begin with).
For example, look at dairy products in Africa. Local farmers couldn't compete with the heavily subsidised European industry for a long time.
Just that Europe has no interest in a healthy market for food stuff because they would lose local producers. They want to stay at least somewhat sustainable.
The argument is that Bombardier was selling jets at unfairly low prices thanks to subsidies from the Canadian government. I have no idea if this is true or not, but generally you can't get tariffs without pointing to some alleged unfair trading practice.
I have no idea if this is true or not, but generally you can't get tariffs without pointing to some alleged unfair trading practice.
I'd buy that if this was a WTO ruling but these are tarrifs adjudicated by Americans, supporting an American company.
The US similarly imposed tarrifs on softwood lumber not that long ago, and they were determined to be illegal once it hit the WTO. There's no reason to believe that won't happen again.
* Boeing is guilty of the same, selling hundreds of both the 737 and 787 far below production costs to be able to compete with Airbus' 320 and 350.
* Slapping such a massive tarif onto the CSeries was a political move aimed purely at squashing a new competing product that barely overlaps in cost/capabilities with a 40 year old, obsolete Boeing product.
Bombardier got a huge bailout by the Quebec Government, so it effectively funded a US companies competition. That type of thing is bad for competition. But, as a result, the few hundred planes they would have sold will not be made by their largest competitor in the US.
In fairness, Quebec took a 49.5% stake in return. There's a huge grey area between complete non-intervention and state-owned or state-financed industries (Quebec doesn't control the money supply).
Plus, there are all the tax deals Boeing gets. It would be interesting to compare those with the tax deals Bombardier gets in Canada.
I was under the impression it was the Province buying into the C Series Jet. They own a % of the Jet just like Airbus now owns a %. You know the way the US Government bought GM Shares and AIG, etc. An investment not a bailout.
The title seems to suggest that mergers and co-operations are good if it revolves around US companies, but bad if done by Canadians or (shock!) EU companies?
As if Boing never, ever received subsidies, just to drive out competition out of US and worldwide markets? Do people realize that Airbus is still incredibly small and financially fragile compared to the almost to-big-to-fail Boing?
> In this case, Bombardier’s response will serve only to consolidate further an already oligopolistic market
So basically like every other government intervention in markets in the name of helping the 'working class'...
A small group will get jobs and make more money in the short term in exchange for long term growth, competition, and innovation.
The biggest factor never fully considered in these protectionist policies and campaign trail rhetoric is always the fact these companies operate in a global marketplace. It's easy to shift operations or capital to foreign markets with more business friendly policies. So domestic restrictions rarely hurt the large companies, it only restricts local jobs and the smaller companies who can't afford to compete in this fashion.
I keep seeing arguments that Boeing made a mistake in pushing on the tariffs, or that this deal with Airbus is bad for Boeing.
They're wrong. In Boeing's ideal world, they're the only airplane manufacturer in the world. The next best thing, is to only have Airbus as competition. Boeing's interests are served tremendously by keeping the global market as consolidated as possible down to just Boeing and Airbus. They have one main target to focus on when it comes to competition and politics. Airbus eating Bombardier is the next best thing to Bombardier going out of business. Simply put, Boeing would rather Airbus own / control Bombardier, than have Bombardier exist as a successful independent airplane manufacturer.
I get your argument; but one of Boeing's objectives has been to try and keep Airbus out of the US (both defense and commercial). This deal with Delta will showcase, within the US, the CSeries. That could result in other US airlines following suit (particularly smaller regional airlines). Airbus is already fairly successful within the US with regional aircraft sales, this will only further cement that.
Plus keep an eye on China's Comac. They're only ten years old (2008) but due to massive state investment are becoming pretty competitive, they may be eating both Boeing and Airbus's lunch by 2030 if this level of investment continues.
I agree, China will eventually split the global airplane market into a three way race with Boeing and Airbus. I don't think anything can stop that. No doubt Boeing and Airbus know that. As soon as it's possible, use case by use case, China's airlines will switch their purchases to mostly domestic produced airplanes (they won't have a choice for the most part, government edict will dictate that).
You do realize that the Snowden papers show that Boeing did exactly the same corporate espionage, aided by the NSA steaking data from Airbus and directly giving it to Boeing?
The US is just as problematic as China in these things, and has the same levels of subsidies for industries deemed important to national security.
> The US is just as problematic as China in these things, and has the same levels of subsidies for industries deemed important to national security.
Let's talk about government subsidies:
(July 2015)
"China's Global 500 companies are bigger than ever—and mostly state-owned"
"the top 12 Chinese companies are all state-owned. They include massive banks and oil companies that the central government controls through the State-Owned Assets Supervision and Administration Commission of the ruling State Council (SASAC), which appoints CEOs and makes decisions on large investments. Of the 98 Chinese companies on the list, only 22 are private."
Using one example to proclaim that the US is committing as much intellectual theft as China, is comical. The US has dramatically more to lose than China does, given its general technological superiority (whether at the university lab level or the corporate R&D level).
The second point is even more absurd, and very easily demonstrated to be false (as I did above). Most of China's largest corporations are State controlled entities. Most of their largest industries, such as steel, are directly controlled by the government. A very large share of the Chinese economy is operated by fully nationalized, or partially nationalized fake corporate entities. So called State corporations.
I posted this in an earlier thread on the topic, but I'll rehash it here.
Having Airbus buy this line from Bombardier is actually very good for Boeing. For a long time, one of the major selling points of Airbus twins has been cockpit commonality. They're so close that your pilots can maintain type ratings on several different airframes. That gives airlines labor flexibility.
Boeing hasn't had that option. The closest they came was with the 757/767 -- those airframes had the same 41 section.
Now that Airbus is going to be selling an aircraft that won't have the same cockpit as the A319/320, Boeing will have a better opening to sell their 737. The airlines are going to need to pay for training on multiple airframes, so why not consider Boeing as well.
"News of the tie-up was greeted warmly not only in Canada but also in Northern Ireland, where the C-Series’ wings are made. The Democratic Unionist Party, the province’s largest party, which supports the government of Theresa May, the British prime minister, said it was “thrilled” with the deal."
This is quite important too. If the UK had a functioning Foreign Office they would have been wading in on behalf of Bombardier. The DUP have an extremely disproportionate influence at the moment, but at least they're using it to preserve jobs in a deprived area this time.
The sense I've gotten is that there was a lot of concern from potential customers about the ability of Bombardier to continue the C-series program without being able to sell to the US market. This deal assuages those concerns, which helps with making sales to customers outside the US as well. So it's a good thing, but its disappointing that it came to this.
It also means a small group of factory jobs are moving to the US, so publicly it can appear as a win to the US administration. In reality there was quite a significant cost for very little gain (costs to the global economy, US diplomacy with CA/UK, domestic US competition, etc), and the profits are still ultimately going to Canadian and UK companies.
This just isn't a productive use of state resources.
They'd do more for the economy and working class by getting out of the way of business instead of generating even more convoluted backroom deals with megacorps like Boeing.
Boeing saw an ally in the Trump admin and NAFTA renegotiation and tried to play a curve ball.
Because some of these planes may actually be made in the US, it's possible Airbus+Bombardier may have completely outmanoeuvred Boeing, rendering the recent rulings irrelevant.
Canada, a small open country with an open culture, is really in a tight spot next to the USA.
Ironically, I'm not sure how much open borders benefits Canada - it benefits Canadians because they can move to the US ... but almost everyone I know who is talented moved to the US long ago - that's where the HQ of everything in.
One could say the same of midwestern states: sans a 'core' economic sector to drive them, the rest of the more powerful states will eat their lunch.
Yeah I've wondered for a while about the crowing over students from Waterloo moving to the US. Would Canada be better off if there was no TN visa and companies would have to employ them in Canada? Also good point about Canada and the midwestern states being in the same boat. I'm sure Nebraska loses a decent number of software engineers to California every year.
As a Québécois, I haven't seen much discussion about the effects of diluting Québec's shares in the plane. The article says our new stake is 19%, down from 49%. I feel we got kind of shafted in the deal, given we bought these shares at a valuation of ~5.5B (for 2.8B) and now Airbus gets a bigger share for free. I don't think this means good news for our investment.
Having a 19% stake in selling 6000 planes (as the article mentions), is worth a lot more than a 49% share in selling 300 planes. Also, Bombardier had to constantly discount the plane and take lower margins just to get airlines to buy, which with Airbus's sales and support network will no longer happen. Plus a lot of the uncertainty of the project has magically gone away.
Very valid point, but I'm wondering if 'assembly' does more to the US to avoid the tariffs on the C-series; does that mean there will be less economic benefit for Quebec? For example, by assembly jobs moving to the US.
They may gain in value of their acquired shares but they may also lose in terms of wider economic output for their province.
It's unlikely that Airbus would switch all manufacturing to the US, so I think Québec is still going to see more jobs generated from building a portion of the 6000 planes than only 300 planes.
Only final assembly of the planes that are sold to US airlines will be done in Mobile. In the Airbus world, final assembly tends to mean bolting together a relatively low number of finished sections that were produced somewhere else. So a lot of the labor will stay in Canada.
Australia, Canada, France, Italy, Japan, Korea, Sweden and ( if RR engines chosen ) UK all send their assemblies to Seattle and Charleston. That's without considering avionics and internal systems.
Hence the wording 'Country of final assembly' on the onboard safety cards, carefully chosen to obscure origins.
To be fair, the Quebec government made their bed in this deal. The original terms were terrible (over valued, highly favorable to Bombardier in both failure and success).
The deal the caisse made with Bombardier, was more aligned with reality. It was highly punitive for failure, and rewarding with success.
Plus the supply chain which also have global value when it's time to acquire parts wherever you are located when the plane breaks down (or just need new parts).
"The tax incentives given by the state of Washington and believed to be the largest in US history surpassing the previous record of $5.6bn over 30 years awarded by the state of New York to the aluminum producer Alcoa in 2007. The $8.7bn over 40 years incentive to Boeing to manufacture the 777X in the state includes $4.2bn from a 40% reduction in business taxes, £3.5bn in tax credits for the firm, a $562m tax credit on property and buildings belonging to Boeing, a $242m sales tax exemption for buying computers and $8m to train 1000 workers,
Airbus alleges this is larger than the budgeted cost of Boeing's 777X development program and the EU argues amounts to an entire publicly funded free aircraft program for Boeing"
Not that any other country cares one bit about Canada. Even the UK, which has a pretty big stake in this whole thing has kept mum, presumably because they don't want to upset their own future trade deal with the US.