Ottawa and Quebec face a possible new hurdle in their efforts to help Bombardier Inc. and its troubled C Series aircraft – the U.S. government.
The Obama administration has put the federal and provincial governments on notice that it considers the planned bailout of the Montreal-based company a worrisome barrier to trade, according to an annual compendium of dubious foreign practices by U.S. Trade Representative Michael Froman.
"The United States will continue to monitor carefully any government financing and support of the C Series aircraft," according to the 2016 U.S. National Trade Estimate (NTE) Report on Foreign Trade Barriers, released last week.
The report lists nearly $1.5-billion (U.S.) in government funds committed to the C Series, including Quebec's plan to take a $1-billion equity stake in a newly created joint venture with Bombardier. The report raises similar concerns about government-backed loans and financing being offered to potential buyers of the 110- to 160-seat commercial airliner, which is slated to go into service this year.
"The U.S. has also expressed concern over the possible use of Export Development Canada export credit financing to support commercial sales of Bombardier C Series aircraft in the U.S. market," the report said.
The report similarly makes note of the hundreds of million of dollars in government support for research-and-development work on the plane.
But Quebec insists its investment is not an illegal subsidy. "We have done our due diligence to make sure our investment respects standing international trade agreements," said Melissa Turgeon, spokeswoman for Quebec Transport Minister Jacques Daoust.
Ottawa also said that whatever it might do for Bombardier won't run afoul of trade rules.
"Aerospace is an industry with significant government participation," said Philip Proulx, a spokesman for Navdeep Bains, the Minister of Innovation, Science and Economic Development. "The Government of Canada will ensure that if there is any assistance, it will comply with international obligations."
Bombardier is still awaiting word from Ottawa on whether it intends to join the Quebec government as an equity partner in the C Series. The federal government has hired investment bank Morgan Stanley to help it evaluate the proposed investment.
Bombardier confirmed this week that it has not received the first of two $500-million payments to finalize the Quebec government's investment in the airline program.
The plane maker signed a memorandum of understanding with the Quebec government last fall under which the province agreed to invest $1-billion for a 49.5-per-cent equity stake in a new limited partnership containing the assets and liabilities of Bombardier's C Series airliner program as well as warrants for up to 200 million subordinate voting shares in the parent company. Bombardier would keep control with a 50.5-per-cent stake.
But the deal hasn't closed yet, according to Bombardier officials.
Debate over whether Ottawa should help the company, and under what conditions, has been heated in Canada, with critics pointing out the shortcomings of the company's entrenched owners, while supporters noting the significant backing Europe and the United States give to their leading aerospace manufacturers.
The NTE report is a massive catalogue of barriers U.S. companies and investors face in 63 different countries. For example, the chapter on Canada lists concerns ranging from rules in Ontario and B.C. that favour domestic wine sales in grocery stores to changes to Canada's dairy supply-management regime, telecom-ownership rules and Ottawa's insistence that data it uploads to the "cloud" remain in Canada.
Not all the issues listed constitute what the U.S. considers illegal barriers. But U.S. officials use the report as a guide to possible trade challenges and in ongoing trade negotiations.
The report makes clear that while it considers all the barriers "significant," not all are deemed to be inconsistent with international trading rules. The inventory "enhances awareness of these trade restrictions and facilitates negotiations aimed at reducing or eliminating these barriers."
"The United States already has one of the world's most open economies," Mr. Froman said in a statement. "But not all countries are playing by the same rules, and all too often, our workers and businesses face significant obstacles when they export their goods and services abroad."
A spokesman for Mr. Froman was not immediately available for comment.