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UPDATE 2-U.S. launches probe of Boeing dumping, subsidy claims vs Bombardier

(Adds USITC hearing details, background)

SEATTLE, May 18 (Reuters) - The U.S. Commerce Department said on Thursday it is starting an investigation into claims by Boeing Co that Canadian plane maker Bombardier Inc dumped CSeries jetliners in the U.S. market and benefited unfairly from Canadian government subsidies.

The Commerce probe, which was expected, parallels an investigation 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.

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 are 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 jet liners in North America and globally, and on U.S.-Canadian relations.

The CSeries is critical to Bombardier's future. If the U.S. 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.

The Commerce Department on Thursday also announced its intent to renegotiate the North American Free Trade Agreement.

Commerce Secretary Ross has vowed to aggressively police unfairly traded imports to help shrink U.S. trade deficits.

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; Editing by Andrew Hay and Bill Trott)