The plane at the centre of Boeing and Embraer’s dual disputes with Bombardier, the C Series, will soon be assembled at Airbus’s plant in Mobile, Alabama. This, thanks to a significant investment by Airbus in the Canadian company. The deal, which gives Airbus a majority 50.01 percent stake in the C Series Aircraft Limited Partnership (CSALP), makes moot the 300 percent import duty imposed in September on sales of the aircraft by United States Department of Commerce.
The US Department of Commerce announced in late September that it would impose the high import duty to compensate for what Boeing called ‘massive illegal subsidies’ from federal and provincial Canadian governments. The subsidies, according to Boeing, enabled Bombardier’s engagement in ‘product dumping’ in the US market in that they allowed Delta to buy the C Series for US$19.6m per plane rather than US$33.2m.
Simultaneously, Brazil brought a complaint against Canada at the WTO, on behalf of Embraer. Brazil alleges that Canada provided Bombardier with US$3bn in ‘illegal financing’ with subsidies that violate WTO rules.
If the US International Trade Commission rules in Boeing’s favour, it would likely cause Delta to back out of the deal with Bombardier. That is, it could have done if Bombardier hadn’t secured a partnership with Airbus to do the final assembly of the C Series in the US.
Corporate welfare at the heart of both disputes
At issue in both disputes is the significant corporate welfare that Canada has provided to Bombardier in recent years for the production of the C Series. In June 2016 the Québec government, via Investissement Québec (IQ), invested US$1bn in CSALP in exchange for a 49.5 percent stake in the newly-created subsidiary of Bombardier Inc (as reported in the 2016 annual financial filing of Short Brothers Plc, the UK manufacturing subsidiary of Bombardier Inc). (Following the deal with Airbus, Bombardier retains 31 percent ownership and IQ maintains 19 percent.)
The Fraser Institute reports that Bombardier received more than C$1bn from the Canadian government since 1966, with most of that coming in the form of conditionally repayable loans from Industry Canada. That’s in addition to the US$1bn investment in CSALP by the Québec government in 2016 and the reported US$282m in loans that the Canadian government contributed to the production of the C Series.
These figures do not quite add up to the alleged US$3bn that Brazil claims Bombardier has received. Canada is rather tight-lipped about releasing information about corporate welfare given to specific companies, according to the Fraser Institute. And, at this stage, the documents filed by Brazil with the WTO are restricted from public access, so we will have to wait for these details.
However, we know that in the UK, Bombardier, which has production facilities located in and around Belfast, received over £200m between 2003 and today (see our Corporate Welfare Database). And in the US, the company received around US$230m between 1996 and 2017. This has come mostly in the form of loans, according to data available in the Good Jobs First Subsidy Tracker.
Boeing’s $64.8bn makes it the corporate welfare king in this fight
If Brazil’s complaint is accurate, US$3bn in corporate welfare from Canada alone is hardly insignificant. Add the funding from the UK and the US into the mix and that tally is closer to $US3.5bn.
Yet, even that pales in comparison to the corporate welfare Boeing has received from the US federal government: a staggering US$64.8bn. In their 2015 report, ‘Uncle Sam’s Favorite Corporations,’ Good Jobs First reported that Boeing took in this massive amount of corporate welfare in the period from 2000 to 2015. Most of it came in the form of loans from the Import-Export bank and made Boeing one of the top corporate welfare claimants in the US.
In addition, Boeing received US$13.4bn in state and local subsidies over this time period. The report also points out that Boeing benefitted from US$18bn in federal procurement contracts in 2014 alone.
Perhaps this is why, Boeing, like Bombardier, has been able to sell its Dreamliner aircraft for a price far less than its market value.
Given the reality of Boeing’s corporate welfare receipts in the US, and that it’s ‘guilty’ of the same practice of which it has accused Bombardier, it’s hard to imagine why Boeing picked this fight. And now that the Airbus deal has eliminated the problem, critical eyes are now trained on Boeing.
Nicki Lisa Cole, Corporate Welfare Watch