In challenging economic times, companies are more vulnerable to fluctuations in market share, cost increases and competitors' pricing.
When domestic producers in Canada face competition from imports, one avenue of recourse is the initiation of anti-dumping and/or countervailing duty actions against such imports. This process can lead to results in a matter of months, with a significant impact in favour of domestic producers' competitiveness.
What is Dumping and Subsidization?
Dumping occurs when foreign goods are sold to importers in Canada at prices that are lower than the selling price of comparable goods in the country of export, or when foreign goods are sold to Canadian importers at a price that is lower than their fully absorbed costs of production. Where injury to Canadian production results, the amount of dumping on imported goods may be offset by the application of "anti-dumping" duty. Subsidized goods are goods imported into Canada that benefit from foreign government financial assistance. Examples of subsidies can include loans at preferential rates, grants and tax incentives. The amount of subsidizing on imported goods, when injurious, may similarly be offset by the application of "countervailing" duty.
The Special Import Measures Act ("SIMA") is the principal legislation in Canada that serves to protect the Canadian industry from injury caused by imports of dumped and subsidized goods. The Canada Border Services Agency ("CBSA") and the Canadian International Trade Tribunal ("CITT") are the two federal agencies sharing jurisdiction for the administration of SIMA: the CBSA conducts investigations to determine whether goods have been dumped or subsidized, while the CITT makes determinations concerning whether the dumped or subsidized goods have caused material injury to the Canadian domestic industry producing those goods.
Where the CBSA has found dumping or subsidization to have occurred and the CITT has found that such dumping/subsidization has caused injury to the Canadian industry, duties will be applied against such imports into Canada for an initial five-year period, and may be continued for subsequent five-year periods. The term "subject goods" refers to the goods imported into Canada, which are the subject of the anti-dumping or countervailing duty investigation. The term "like goods" refers, depending on the context, to either the comparable goods produced by the Canadian domestic industry or the comparable goods produced by manufacturers in the exporting countries that are sold in their home markets.
The Anti-Dumping / Anti-Subsidy Procedure
The anti-dumping and anti-subsidy process is detailed in SIMA and reflects the guidelines established in international trade agreements on dumping and subsidy. The procedure provides for precise and expedient timelines, which guarantee a speedy resolution of complaints and investigations, usually within seven to nine months of initiation.
In order to initiate an investigation into alleged dumping or subsidization, a valid complaint must be filed with the CBSA. A complaint is typically filed by or on behalf of a significant proportion of the Canadian industry by an individual company or by an association of Canadian producers. A complaint must be supported by one or more Canadian producers whose combined production represents 25% or greater of the Canadian production of the goods at issue. In addition, the total production of Canadian producers who would actively oppose a complaint may not exceed the total production of Canadian producers in support of the complaint. The complaint must contain information, supported by appropriate evidence (e.g., invoices, price offers, statistics, etc.), showing that the subject goods are being exported to Canada at dumped or subsidized prices, and that they are causing injury to the Canadian producers.
Within 21 days of receiving a complaint, the CBSA will advise the complainant whether the complaint is properly documented. Then, within 30 days of such notice, the CBSA will evaluate the complaint and decide whether to initiate an investigation. In deciding so, the CBSA will consider (i) whether the complaint has been made by the domestic industry and has the requisite support; (ii) whether the complaint is supported by sufficient evidence to support allegations of dumping or subsidization; and (iii) whether there is a reasonable indication that dumping or subsidization cause or threatens injury to the domestic industry.
The CBSA Investigation
The purpose of a CBSA anti-dumping investigation is to obtain detailed information from importers and exporters of the subject goods and to determine if the goods at issue have indeed been sold to Canadian importers at dumped prices. In a CBSA countervailing duty (i.e. anti-subsidy) investigation, detailed information is also obtained from the governments of the exporting countries, to determine whether the subject goods have benefited from countervailable subsidies. Upon the initiation of a CBSA investigation, a copy of the complaint is provided to the CITT, notice of the decision to initiate an investigation is published in the Canada Gazette, and all known importers, exporters and foreign governments concerned are provided written notice of the investigation. In addition, questionnaires are sent by the CBSA to exporters, importers, and in subsidy investigations, to the relevant foreign government(s). The questionnaires are intended to collect detailed information on the alleged dumping or subsidizing of the imported goods and the CBSA will, as needed, meet directly with these parties to examine the information provided. Where an exporter or foreign government fails to provide the requested information, or only provides incomplete information, the CBSA may consider them as "uncooperative," and then apply the highest margin of dumping or subsidization found during the investigation for the goods in question to imports from such exporters or foreign countries.
If the CBSA determines that the margin of dumping or the amount of a subsidy is not insignificant and the volume of dumped or subsidized goods is not negligible, the CBSA will make a preliminary determination of dumping or subsidization within 90 days (or in exceptional cases, 135 days) after initiation of its investigation. A preliminary determination authorizes the imposition of anti-dumping or countervailing duties, equal to the dumping or subsidy found, on the targeted imports.
The volume of subject goods from a particular country will be considered "negligible" if, over the CBSA's period of investigation, the volume of subject goods from that country was less than 3% of the volume of imports of subject goods from all countries, or where three or more countries each meet this less than 3% threshold, if the total volume of dumped goods from all these countries is less than 7% of the total volume of imports.
A margin of dumping will be considered "insignificant" if it is less than 2% of the export price of the goods, and an amount of subsidy will be considered insignificant if it is less than 1% of the export price of the goods.
The CITT Inquiry
The CITT, a quasi-court independent from the CBSA, has the jurisdiction to determine whether the dumping and/or subsidization has caused material injury to the Canadian industry. Upon receiving a notice from the CBSA of its decision to initiate an investigation, the CITT will conduct a preliminary inquiry to determine whether the evidence supporting a complaint provides a "reasonable indication" that the dumped or subsidized goods have caused material injury, or are threatening material injury to the domestic industry. If so, the CBSA will continue its investigation and the CITT will conduct a detailed inquiry into the question of injury.
Within 120 days of receipt of a notice of preliminary determination of dumping or subsidization from the CBSA, the CITT must complete its final inquiry and issue a finding as to whether the dumping or subsidization has caused material injury or is threatening such injury to the domestic industry. In conducting its inquiry, the CITT distributes questionnaires, prepares a Staff Report on the matter and holds public hearings where interested parties are permitted to present evidence and arguments and to question witnesses. Interested parties include Canadian producers, importers and foreign exporters, as well as governments in certain circumstances.
If in its final determination, the CBSA determines that no dumping or subsidization has occurred, or that the margin of dumping or subsidization is insignificant, the CBSA will terminate its investigation and the CITT will terminate its inquiry.
Therefore, the whole procedure, from the filing of a complaint to the decision of the CITT on injury, is usually completed within a period of nine months.
The Determination of Dumping and Subsidization
To determine whether goods have been dumped, the CBSA compares the prices of the subject goods imported into Canada against the home market price of like goods in the country of export. Dumping exists if the export price to Canada is less than the "normal value," which is considered to be the fair, undumped price. The "normal value" will either be the home market price of the product, if that price is profitable, or the fully absorbed cost of the product plus an amount for profit. The margin of dumping is the amount by which the normal value exceeds the export price.
The CBSA uses various methodologies in determining the level of subsidization, depending on the type of subsidy at issue (i.e., grants, tax deferrals, etc.). However, given the specific nature of subsidy programs in various countries, the CBSA will adopt a methodology for each type of subsidy in accordance with the particular subsidy program under investigation.
China and other Non-Market Economies
There are special rules applicable where the CBSA believes that the relevant industry in the foreign country does not operate under market conditions. If prices in the home market of the exporting country are not determined by ordinary market forces of supply and demand, the CBSA may rely on prices in a different, market economy country to calculate normal values. This has been done by the CBSA in several recent investigations involving China.
The Determination of Injury
"Injury" in the SIMA context is material injury to the domestic producers of like goods, material retardation of the establishment of a domestic industry of such goods, or threat of material injury to producers of like goods. Material injury may be shown by evidence of factors such as (i) low-priced dumped or subsidized imports that cause reduced domestic prices; (ii) lost sales; (iii) lost market share; (iv) decreased profits; (v) reduced capacity utilization; (vi) increased inventories; (vii) reduced employment; and (viii) other factors considered relevant. The CITT must also consider whether the dumped or subsidized goods have themselves caused the material injury. Factors considered to assess causation include (i) the volume and increase of dumped or subsidized imports and (ii) their impact on prices, etc., in the domestic market.
The Imposition of Duties
The CBSA can impose provisional duties on imports of dumped or subsidized goods as soon as its preliminary determination of dumping or subsidization issues, which is typically within three months of the initiation of an investigation. The provisional duty is applied at a rate based on the estimated margin of dumping or estimated amount of subsidy on the imported goods. The provisional duty remains in effect until the date that the CITT issues its final injury determination. This temporary duty is intended to protect Canadian producers until the CITT makes its final injury decision.
If the CITT finds that injury was caused or threatened, the CBSA will impose anti-dumping or countervailing duty on all imports that are dumped or subsidized.
Expiry Reviews, Interim Reviews & Judicial or Panel Reviews
A finding imposing anti-dumping or countervailing duties will, absent renewal, lapse five years after it is made. Ten months prior to such lapse, the CITT notifies interested parties of the impending sunset, and requests submissions on whether a review should be initiated in the matter. If it is satisfied that renewal may be warranted, the CITT will then conduct an expiry review.
An expiry review determines whether the continued imposition of anti-dumping or countervailing duties is warranted beyond the initial five-year period. The CITT will order the continuation of an injury finding (and therefore the continued imposition of duties) where there is a likelihood of resumed or continued dumping or subsidization and injury to the domestic industry as a result. Anti-dumping and countervailing duties can be imposed for additional periods of five years until the order is reviewed or rescinded.
The CITT may also review its determinations at any time where there is a reasonable indication that there has been a change in the circumstances that led to the finding, in a proceeding termed an interim review. This typically occurs when production in Canada of the like good ceases, and thus no like good industry remains to protect.
Finally, any party may request judicial review of a decision of the CITT or the CBSA at the Federal Court of Appeal. Grounds for such reviews typically include denial of natural justice or errors of jurisdiction, law or fact. In matters involving products imported from Mexico or the United States, parties from such countries may request that a binational panel review a decision of the CBSA or the CITT under the North American Free Trade Agreement. Similarly, member countries of the World Trade Organization (WTO) may challenge findings of the CBSA or the CITT through the WTO dispute settlement process, where the investigation or administration of duties is alleged to breach WTO rules.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.