Canada: Canadian International Trade Tribunal Continues Anti-Dumping Order After 21 Years Of Protection

Originally published in Blakes Bulletin on International Trade - September 2005

Article by Maria Morellato and Angela D’Elia, ©2005, Blake, Cassels & Graydon LLP

On September 12, 2005, the Canadian International Trade Tribunal (Tribunal) released its statement of reasons continuing, with amendment, an anti-dumping order concerning whole potatoes imported from the United States (U.S.) for use or consumption in British Columbia (B.C.). With the amendment, the Tribunal excluded from its order certain potato types and pack sizes.

The decision concerned the expiry review of a Tribunal order that was initially made in June of 1984, and that has continued, with some modification, since that time. The order imposed dumping duties on certain varieties of potatoes being imported from the U.S. into B.C. at prices that had been injurious to the B.C. potato industry. On September 12 of this year, the Tribunal decided that, after 21 years of anti-dumping protection, the B.C. potato sector was still at risk of being injured by low-priced U.S. potato imports.

An expiry review is a two-stage process that occurs once very five years. First, the Canada Border Services Agency (CBSA) conducts an investigation to determine whether the expiry of the order is likely to result in the continuation or resumption of dumping of the subject goods. On April 14, 2005, the CBSA determined that the expiry of the current order was likely to result in the continuation or resumption of dumping of potatoes by the U.S. into B.C. During the second stage, the Tribunal conducts its own review of the order to determine whether its expiry is likely to cause injury to the domestic industry. In continuing the order, the Tribunal in this case concluded that "the rescission of its order will likely result in injury to the growers of all or almost all of the potato production in British Columbia."

The principal parties involved in the review were the B.C. Vegetable Marketing Commission (BCVMC), representing the B.C. potato industry, and the Washington State Potato Commission (WSPC). Washington is the most important exporter of potatoes to B.C., accounting for approximately 80% of the total imports coming into that province from the U.S.

The factors that the Tribunal will consider during an injury analysis are aimed at helping the Tribunal determine to what extent the domestic industry, in this case the B.C. potato industry, will be adversely affected, or injured, if the order is not continued. Injury to the industry may take a number of forms, including significant increases in dumped imports, significant price undercutting or price depression. The Tribunal will also consider the relative impacts of the imports on output, sales, market share, profits, capacity utilization, inventories and employment.

In this case, the Tribunal focused on the following factors:

Principal among the changes since the last review was the formation of potato grower co-operatives in the U.S., the stated purpose of which was to stabilize and improve the prices of potatoes by keeping production levels in line with demand. Despite the various limitations of the co-operatives, including the fact that they were voluntary organizations and had only been in operation for a short period of time, the Tribunal noted that, since their inception, the co-operatives had been able to reduce the total potato acreage harvested in the U.S.

The Tribunal also noted a shift in the potato varieties being used in the U.S. and B.C. and commented on the improved viability of the B.C. industry, noting that sales of potatoes by one of the potato sales agencies operating in the province had increased by 50% between 2000 and 2005.

The Tribunal noted that, in recent years, the oversupply situation in the U.S. marketplace had been exacerbated, resulting in low potato prices for the last several years. The Tribunal concluded that rescinding the order would result in increased imports from the U.S. in the years to come, which would eventually cause B.C. growers to cut back on their plantings and, inevitably, lose market share. Furthermore, given the size of the Washington potato market alone, where only 10% of its fresh market production is equal to the entire annual volume of potatoes grown in B.C., a continued situation of oversupply in the U.S. would result in significant volumes of extra potatoes being exported to the B.C. market.

Potatoes are a commodity. Thus, the Tribunal concluded that a decrease in U.S. potato acreage, as predicted by the U.S. potato co-operatives, would likely result in increases in U.S. prices for potatoes being imported to B.C. for the 2005-2006 crop year. However, the Tribunal further concluded that, even with the predicted price increases, U.S. potato prices, with few exceptions, would remain below the established normal values for white and russet potatoes exported to B.C. Further, the Tribunal was not convinced that U.S. potato prices would increase further in the 2006-2007 crop year.

The Tribunal concluded that, should the order be rescinded, the profitability of the B.C. potato industry would be significantly affected, as B.C. is a price taker that must set its prices at levels competitive with U.S. imports. If the order is rescinded, injury would result because U.S. import prices would remain below established normal values. The Tribunal estimated that B.C. growers would likely experience a $1.2 million decrease on their bottom line for the 2005-2006 crop year alone. The Tribunal further surmised that the magnitude of injury in 2006-2007 would be even greater. The Tribunal concluded that such a loss would affect the financial health of the entire B.C. potato industry.

After reviewing these factors, the Tribunal concluded that the U.S. was likely to continue overproducing potatoes in the near to medium term and that U.S. potato imports going into B.C. would continue to be priced low. While B.C. potato growers might be able to compete at these low prices during the short term, in the longer term the financial health of the entire potato industry would be jeopardized and injury would inevitably result.

The Tribunal excluded from its order red, yellow and exotic potato varieties, an exclusion to which the BCVMC had consented at the outset of the hearing. With respect to white potatoes, however, the Tribunal denied the exclusion request on the basis that white and russet potatoes were highly substitutable in the B.C. market and an exclusion for white potatoes would likely result in injury to the B.C. industry. The Tribunal did, however, grant an exclusion for certain count-size cartons of white and russet potatoes, reasoning that these particular count sizes had been sold at prices above normal values for most of the time during the period of review.

In the end result, the Tribunal continued the anti-dumping order for white and russet potatoes, with a limited exception for certain pack sizes. This decision is extremely important for other Canadian commodities being threatened by low-priced imports. The continuation of the order reinforces the importance of protecting Canadian markets from unfair international trade practices and ensuring that protective measures stay in place so long as domestic markets continue to be injured by unfair trading, like dumping. International trade relationships are important to Canadian markets. However, all parties must be able to benefit from these relationships if they are to remain profitable.

The order on whole potatoes imported from the U.S. into B.C. represents one of the longest running anti-dumping orders for any industry in Canada. Whether or not the U.S. potato industry will refrain from exporting potatoes into the B.C. market at dumped prices in the years to come will remain to be seen at the next expiry review, five years from now.

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