MIAMI — The Brazil Foreign Ministry has asked the World Trade Organization to set up a dispute settlement panel to resolve the ongoing trade dispute between Brazil and Canadian aerospace giant Bombardier. The dispute is over subsidies provided to the struggling Bombardier from the Canadian government that then enabled them to sell aircraft below the cost of production.
“The Brazilian government hopes that the litigation will allow the rebalancing, as soon as possible, of the conditions of international competitiveness in the aeronautical sector, artificially affected by the Canadian subsidies,” said the Brazil Foreign Ministry in a statement.
In June, Airways asked Embraer Commercial Aviation CEO John Slattery about this very issue. In response, he said: “I am going to be very careful with what I say on that. We are not interested in speaking about that campaign explicitly. Our position is as an independent manufacturer, our position is that fair and balanced commercial trade is the way to go.”
When asked if Embraer would take action against this order, Slattery said they “are supporting Brazil in their action at the World Trade Organization. We are invited to watch the current proceedings that Boeing is undertaking.”
During a presentation, Slattery praised the ability for the Embraer E-2 to sell itself in a “fair and balanced campaign.”
During the 2016 Farnborough Airshow, Embraer CEO Paulo Cesar de Souza e Silva fired a shot at Bombardier with the following statement:
“I don’t believe Bombardier is able to raise equity in the public market. That’s why the government of Quebec helped out. We are very concerned about their subsidies. Immediately after the Delta and Air Canada orders, they are taking money from the Canadian tax payer in order to provide aircraft at below cost. It is a huge market disruption and we are disappointed at them… We are looking into it. There is a mechanism with WTO. We need the specifics on their transactions. The Brazilian government is worried about the situation. It’s still early to say what will be the next step. But Embraer will take measures.”
Selling aircraft at prices below the cost of production is not in and of itself in violation of the WTO. As Airways Senior Business Analyst Vinay Bhaskara pointed out last year, “Even aggressive discounting to win market share, alternately dubbed undercutting or dumping depending on who you ask, is actually kosher under WTO rules, meaning that Boeing’s massive discount of 737-700s bound for United somehow did not break any sort of anti-competitive rule.”
In fact, most aircraft manufacturers sell aircraft at below the cost of production in the early stages of production. Boeing and Airbus did this exact practice with the 787 Dreamliner and A350 respectively.
The problem that Embraer has with Bombardier, and what the WTO will investigate, is if the discounts given by Bombardier were only made possible by subsidies provided by the Canadian government.
If the WTO can determine that this is the case, it is very likely that they will side with Embraer on this issue. In May, Boeing itself filed a complaint with the U.S. International Trade Commission and the Department of Commerce regarding Delta’s order for the CSeries.
As part of their filing, Boeing requested that a 79% tax be placed on each CS100 aircraft before delivery to Delta. Boeing claims that this would raise the price of each aircraft to the true production cost of $33 million.