MEI warns against ‘ruinous subsidiary race’ in aerospace sector
The Montreal Economic Institute is using the trade spat between Boeing and Bombardier as a cautionary tale against excessive government subsidies in aerospace, and suggesting a new international treaty limiting how much assistance governments can provide to manufacturers
MONTREAL—The Montreal Economic Institute is coming out swinging against aerospace subsidies.
The right leaning think-tank points to the current trade spat between Bombardier and Boeing, with the American company accusing the Quebec aircraft manufacturer of being unduly subsidized, as an example of government assistance gone too far.
The trouble between the two airlines began at the end of April when Boeing accused Bombardier of selling its CSeries commercial jets into the U.S. market well below the cost to produce the planes and below what it charges for the same aircraft in Canada, something Boeing argued Bombardier was only able to do because it is heavily subsidized by both the Quebec and Canadian governments.
Boeing’s complaint against Bombardier’s alleged dumping was brought to a Washington courtroom in May.
The nastiness ramped up considerably after that, with Defence Minister Harjit Sajjan threatening to scrap the federal government’s planned purchase of Super Hornet fighter jets from Boeing and our government making a public show of snubbing Boeing for Lockheed Martin at the Paris Air Show in June.
Boeing has asked the U.S. Department of Commerce to impose tariffs on Canadian airplanes, and a decision is expected to be handed down at the end of September.
MEI argues that the bad blood between the two companies and governments, along with the legal headaches and the threat of punitive tariffs, could have been avoided by a new international agreement to avoid “a ruinous subsidy race” in the global aerospace sector.
International agreements to restrict governmental support in aerospace have been concluded in the past, like the Aircraft Sector Understanding (ASU)—its first version signed in 1986.
MEI says this treaty has been relatively effective in limiting the expansion of certain subsidies, and the think-tank is calling for an “improved” version which would provide guidelines for other types of government support and “constitute a credible commitment to dissuade non-signatories like Russia and China from engaging in a subsidy race.”
“Imagine if a country like China, with a much larger tax base, decides to emulate Ottawa’s recent support of the Canadian industry in assisting its own aeronautic sector. Or again Russia, which has a much larger workforce in the sector, and where the stakes are even higher than they are in Canada,” said Mathieu Bédard, economist at the MEI and author of the publication.
On the other hand, MEI says: “a country like Canada, whose economy is relatively smaller, would never be able to hold its own in a subsidy race. A large portion of the 55,724 jobs in the aerospace manufacturing industry would be put in danger.”
The think-tank says the Canadian taxpayers would pay a heavy price to finance corporate support for the aerospace sector, and instead insists that international agreements limiting how much assistance governments can provide to aerospace manufacturers would be the best course of action.
“It is perfectly understandable for aviation companies to try to obtain public funds if they think that their competitors have access to such funds. That’s why this publication constructively aims to encourage the adoption of an international framework that hopefully will put an end to the vicious cycle of subsidies and protectionist measures. Ultimately, this will protect companies like Bombardier in Quebec,” said Michel Kelly-Gagnon, president and CEO of the MEI.