Canada: Canada Rejects Safeguard Remedy For Bicycles and Barbeques

This article was originally published in Blakes Bulletin on International Trade -June 2006

Article by Ken Purchase, ©2006 Blake, Cassels & Graydon LLP

On Monday, May 29, 2006 Finance Minister Jim Flaherty and International Trade Minister David Emerson announced that Canada will not impose special safeguard duties on imports of bicycles and barbeques, despite the recommendations of the Canadian International Trade Tribunal (CITT). The decisions mark the third time in as many cases since the implementation of the Safeguards Agreement in 1995 that Canada has declined to adopt the CITT’s recommendations. Together the decisions illuminate the breadth of interests considered by Canada in acting on safeguard recommendations and the implications for the litigation strategies of complainants and respondents alike.

The decisions highlight the need for all parties’ litigation strategies to extend well beyond the CITT inquiry stage. In practice, the legal thresholds to be satisfied in a safeguards inquiry have proven to be less onerous than those applied by the government in deciding whether to implement the resulting recommendations. Far from being the end of the process, the release of the CITT’s recommendations marks the beginning of the final advocacy stage. Since the decision on whether to impose surtaxes or other measures on imported goods is ultimately within the federal government’s discretion, it is essential for interested parties to extend their advocacy efforts to the government officials at the bureaucratic and political levels who will ultimately decide on any remedy.

A safeguard is an extraordinary measure providing domestic industries time-limited relief from a surge of imports that overwhelm the domestic industry. There is no need to establish that the imports were unfairly priced, it is sufficient that the domestic industry sustains, or is threatened with, serious injury as a result. Generally, safeguard measures must be applied to imports from all countries. As a condition of its entry into the WTO, however, China agreed to be subject to a special safeguard-like remedy that other countries could apply exclusively to Chinese imports.

As a result of safeguard investigations respecting global bicycle imports and barbeques imported from China, the CITT recommended in September and October of 2005 that Canada impose on these products initial duties of 30% and 15%, respectively.

Canada decided against imposing the CITT’s recommended remedy, just as it had with the recommendations from the CITT’s 2001 investigation of steel products. In deciding against imposing duties, Ministers Flaherty and Emerson acknowledged the difficulties facing Canadian manufacturing, but cited the importance of other considerations bearing on the determination of an appropriate remedy.

The decision did not question the CITT’s finding that imports were injuring the domestic industries. Instead, it considered whether these temporary measures would actually improve the domestic industries’ long-term viability and weighed that benefit against the interests of other affected stakeholders. Ultimately, Canada concluded that any short-term reprieve safeguard duties might provide these two industries did not justify the increased costs to retailers and consumers.

In particular, Canada noted that bicycles are already subject to high levels of duties and that imposing duties on imports of Chinese barbeques would not staunch the flow of low cost imports, but simply change the source from China to a third country. Canada’s announcement specifically framed the decision to not impose these special surtaxes within the new government’s broader policy of tax reduction.

While not explicitly stated, Canada’s decision in the barbeques case was undoubtedly also influenced by the implications a China-specific safeguard duty would have on Canada’s efforts to nurture its trading relationship with the economic superpower.

The reluctance of the Canadian Government to implement safeguard measures in recent cases makes clear that foreign suppliers and importers can successfully defend against calls for protectionist barriers to their fairly traded goods. Safeguards will remain effective tools for Canadian manufacturers, but these decisions make clear that an effective litigation plan must, from the outset, encompass a strategy for securing the implementation of the recommended remedy. It is not enough to establish that the law permits imposing safeguard duties in the circumstances of that industry; the complainant must demonstrate that Canada’s broader interests also favour imposing duties. Advocacy before the Department of Finance is equally critical to respondents. Given the relative ease of satisfying the legal thresholds, this stage provides the greatest opportunity to effectively argue against trade distorting protectionist barriers to fairly traded goods.

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