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Boeing and Bombardier battle beyond the border

A dispute between Boeing and Bombardier over trade rules is reverberating on both sides of the Atlantic.

The fight spilled into the open on Tuesday, when the Trump administration slapped a duty of 220% on imports of “C Series” aircraft built by Montreal-based Bombardier.

The manufacture of the planes, which can hold 150 passengers on flights up to 3,300 miles, relies unfairly on subsidies from the Canadian government, the Commerce Department said in ruling on a complaint filed by Boeing. The subsidies allow Bombardier to sell its planes to U.S. airlines at unrealistically low prices, Boeing charged.

Delta Air Lines, which has ordered 75 of the jets for delivery in 2018 – a deal valued at $6 billion – said the tax, which would add millions to the cost of each jet, would make the planes unaffordable. “We think it’s absurd,” the company’s chief executive told CNBC.

Consequences across the border and beyond

The ruling, which is subject to a final determination in February by the U.S. International Trade Commission, could result in reprisals against Boeing.

Canada said on Thursday it has suspended its purchase of 18 advanced fighter jets built by Boeing and that the company would not be considered for future procurements.

“Rest assured, we cannot do business with a company that is threatening us,” Defense Minister Harjit Sajjan told reporters.

Canada’s foreign minister accused the Trump administration of trying to block Bombardier from the U.S. market. “This is an unjust, punitive ruling,” said Chrystia Freeland, speaking before a dinner with her counterparts from the U.S. and Mexico, who were in Ottawa for talks on the North American Free Trade Agreement.

The battle extended to Britain, where Prime Minister Theresa May said she was “bitterly disappointed” in the U.S. move and asked President Trump to urge Boeing to abandon its challenge, which threatens manufacturing jobs in Northern Ireland.

Bombardier is among the province’s largest employers. About 1,000 workers at a factory in Belfast assemble wings for the C Series.

Reflecting reality

May’s concerns reflect political reality for her Conservative Party, which since losing its parliamentary majority in June has depended on Northern Ireland’s Democratic Unionist Party (DUP) for key votes in the House of Commons.

That may be one reason U.K. Defense Secretary Michael Fallon said this week in Belfast that the maneuver by Boeing, which produces a range of military aircraft for the U.K., could “jeopardize” the company’s relationship with the country.

“This is not the kind of behavior that we expect from a long-term partner and I’ve made that very clear to Boeing,” Fallon said.

Leaders of Northern Ireland’s two main parties warned that the loss of jobs would be a blow to the economy and could undermine peace in the region.

“The security of our economy has and continues to be a crucial part of our efforts in delivering peace through prosperity,” Arlene Foster, leader of the DUP, and Michelle O’Neill, the leader of Sinn Fein, wrote in a letter to Vice President Mike Pence.

“At a time when we are striving to take the next steps in our work on the Peace Process, and resolve our current political difficulties, this issue creates a new and potentially critical factor,” they said.

Of course, Boeing collects subsidies, too. The company sells billions of dollars in aircraft to the U.S. military. Boeing also benefits from lending by the U.S. government that allows other countries to purchase the company’s planes at a discount.

On Friday, the World Trade Organization said it would examine allegations by Brazil that Canadian subsidies to Bombardier allow the company to compete unfairly against put Brazilian aircraft maker Embraer.