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UPDATE 1-U.S. aims to keep steep duties on Bombardier jets after Boeing complaint

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WASHINGTON, Dec 20 (Reuters) - The U.S. Commerce Department on Wednesday finalized steep anti-subsidy duties on Bombardier Inc's CSeries jets, setting up the next round of a fierce international trade dispute between the United States and Canada.

The move announced by the department to impose duties of nearly 300 percent stems from a complaint by rival Boeing Co that Bombardier had been unfairly and illegally subsidized by the Canadian government, allowing the planemaker to dump its newest jetliner in the U.S. market below cost.

Delta Air Lines, the second largest U.S. carrier by passenger traffic, has an order for 75 of the 100-to-150 seat CSeries jets.

The aircraft starts at $79.5 million, according to list prices, or some $5.9 billion for the total order, but carriers typically receive steep discounts.

If imposed, the duties would more than triple the cost of a CSeries aircraft sold in the United States, based on Boeing's assertion that Delta received the planes for $20 million each, well below an estimated cost of $33 million and what Bombardier charges in Canada.

The Commerce Department's penalty against Bombardier will only take effect if the lesser-known U.S. International Trade Commission (ITC) rules in Boeing's favor, as it so far has, in its final decision expected in early 2018.

The decision follows Commerce Secretary Wilbur Ross' pledge to aggressively police unfairly traded imports to help shrink U.S. trade deficits.

The move comes as the United States, Canada and Mexico are involved in a three-way negotiation to modernize the North American Free Trade Agreement (NAFTA).

The rift between the two plane makers could, however, move to a larger stage as Canada weighs a complaint to the World Trade Organization or through NAFTA regarding the dispute.

At a contentious Monday hearing of the ITC, Canada warned that a positive finding of material harm to Boeing by the group could represent a possible violation of international trade agreements and prompt a formal objection.

Canada earlier this month scrapped plans to buy 18 Boeing Super Hornet fighter jets, underlining Ottawa's anger over the trade challenge. Boeing has said it considered all potential risks before deciding to launch its trade case.

U.S.-Canadian trade relations have also chilled recently over disputes over Canadian softwood lumber and U.S. milk protein products.

(Additional reporting by Tim Ahmann and Lesley Wroughton; Editing by Susan Thomas and Nick Zieminski)