Canada links fighter jet deal to Boeing's dumping claims

By Alwyn Scott and Alana Wise

SEATTLE (Reuters) - Canada suggested on Thursday it could scrap plans to buy Boeing Co fighter jets if the United States backed Boeing's claims that Canadian plane maker Bombardier Inc dumped jetliners in the U.S. market.

"Canada is reviewing current military procurement that relates to Boeing," Canadian Foreign Minister Chrystia Freeland said in a statement released late on Thursday.

Canada "strongly disagrees" with the U.S. Commerce Department decision to investigate Boeing's claims that Bombardier sold planes below cost in the United States and benefited unfairly from Canadian government subsidies, the statement added.

The remarks came after the U.S. Commerce Department launched an investigation into Boeing's claims, and pointed to the potential for rising trade tension between the two countries. Boeing and Canada are in talks over the purchase of 18 Boeing Super Hornet fighters this year or in early 2018.

President Donald Trump has called for a strong stronger stance on trade with his "America First" policy that got a boost on Thursday when Commerce formally announced its intent to renegotiate the North American Free Trade Agreement.

The Commerce probe in Boeing's case, which was expected, parallels a probe by the U.S. International Trade Commission (USITC) into Boeing's allegations that Bombardier sold 75 CSeries planes to Delta Air Lines Inc last year at a price well below cost. Bombardier has rejected the allegations and the two sides clashed at an ITC hearing on Thursday on whether the companies' competing plane models are even comparable.

"While assuring the case is decided strictly on a full and fair assessment of the facts, we will do everything in our power to stand up for American companies and their workers," Commerce Secretary Wilbur Ross said in a statement.

"ISN'T MUCH COMPETITION"

The Commerce investigation was announced as USITC staff heard arguments on Thursday from representatives for Boeing, Bombardier and Delta Air Lines Inc, which has sided with Bombardier against Boeing.

The former head of Boeing's commercial aircraft unit told the panel that government subsidies for Bombardier allowed the Canadian company to sell small, 100- to 150-seat jet liners at prices Boeing could not match.

"It is untenable for us to continue competing with government subsidized competitors" Boeing Vice Chairman Raymond L. Conner said. "Bombardier is very close to forcing us out of (the 100- to 150-seat market) altogether."

Bombardier representative Peter Lichtenbaum countered that Boeing's claims were overblown.

"Boeing has not suffered any lost sales or lost revenues due to competition with Bombardier," he told the panel. "There just isn't much competition between Bombardier's CSeries and Boeing's products."

Delta agreed last year to buy up to 75 Bombardier CSeries planes, a deal worth an estimated $5.6 billion based on the list price of about $71.8 million.

How U.S. regulators decide the dispute will have a significant impact on the market for small, regional jetliners in North America and globally, and on U.S.-Canadian relations.

The CSeries is critical to Bombardier's future. If the United States finds that Canadian subsidies for Bombardier have harmed Boeing and imposes duties, demand for the CSeries in the United States could suffer and airlines could pay more.

The disagreement between the two planemakers also adds frost to an increasingly chilly U.S.-Canadian trade relationship, along with disputes over Canadian softwood lumber and U.S. milk protein products.

Commerce said that if the investigations determine that CSeries planes were dumped in the U.S. market or unfairly subsidized, it would collect duties equal to the value of the benefits. Those duties would increase the cost of the Bombardier planes ordered by Delta.

(Reporting by Alwyn Scott, Alana Wise and David Lawder and Allison Lampert; Editing by Andrew Hay and Bill Trott)