Canada: Why The U.S. Should Want To Keep NAFTA Chapter 19 As An Available Dispute Settlement Mechanism

Last Updated: September 1 2017
Article by Cyndee Todgham Cherniak

On August 29, 2017, Canada's Federal Court of Appeal issued two decisions dismissing two judicial reviews (one filed by a Korean exporter and the other filed by a Canadian producer) of Canada Border Services Agency ("CBSA") antidumping calculations on grounds of a lack of jurisdiction.  These cases and the Federal Court of Appeal's recent history in trade remedies cases should demonstrate to President Trump that Chapter 19 of the NAFTA is necessary.  Why necessary? Because Canadian courts can get it wrong (I do, with respect, believe that the two decisions are incorrectly decided).  Because trade remedies laws are complex (it takes years to learn how to properly undertake trade remedies calculations). Because Canada's Federal Court of Appeal judges are not often trade remedies lawyers (there are a limited number of trade remedies lawyers in Canada).  Because U.S. companies should want an alternative to the Canadian and Mexican court system.

The first judicial review decision released on August 29, 2017 is SeAH Steel Construction v. Evraz Inc NA Canada et al. (2017 FCA 172).  In this case, SeAH judicially reviewed a reinvestigation of normal values and export prices by the CBSA.  The CBSA had recently issued a final determination of dumping in respect of oil country tubular goods ("OCTG") and, shortly after the Canadian International Trade Tribunal ("CITT") final injury determination, commenced a reinvestigation to recalculate normal values and export prices and dumping margins. Calculation of dumping margins is very complicated and is based upon volumes of information information provided by the exporter of the subject goods in questionnaires, supplemental questionnaires and on-site verification visits.  In the course of the reinvestigation of normal values and export prices, the CBSA calculated normal values according to cost of production + GSA + reasonable profit. The CBSA increased the amount of "reasonable profit" used by the CBSA for the purposes of calculating the normal value, thereby increasing the normal value to be applied for future shipments to Canada.  This meant that all future imports must be priced above the normal value otherwise antidumping duties would be levied.  Canada does not impose ad valorem dumping margin percentages to future imports of subject goods.  As a result, an increase in normal values can effectively raise prices to uncompetitive levels in order to prevent imports.

In the SeAH Steel case, the Federal Court of Appeal held that it did not have jurisdiction under Canadian law (the Special Import Measures Act ("SIMA")) to review the CBSA's calculation of normal values after a finding of dumping by a country (that is, in the final determination of dumping, the CBSA had found goods from South Korea had been dumped and the dumping was not de minimis or negligible).  The Federal Court of Appeal held that they had very limited jurisdiction and could not amend a dumping calculation of the CBSA and could not say to the CBSA that they made an error in the application of the law regarding dumping margin calculations.  The Federal Court of Appeal wrote:

"In effect, SeAH is asking this Court to adjust an amount used for profit for SeAH in the Final Determination without showing how this revised amount could or would  change the Final Determination that goods from the Republic of Korea were being dumped and the margin of dumping was 2% or more.  This is not a remedy that is contemplated by SIMA.  The only remedies that can be granted are to either dismiss the application or set aside the Final Determination.  Since there is no basis to set aside the Final Determination made with respect to the Republic of Korea, this application will have to be dismissed."

As a result of this decision, the CBSA can make egregious errors in dumping margin calculations (e.g. setting a reasonable profit at 1000%) and an exporter can do nothing about it except convince its home government to file a complaint with the World Trade Organization dispute settlement body.  According to the Federal Court of Appeal, individual company dumping margin calculation errors cannot be reviewed by a Canadian court after a Final Determination against a country.

The Second case is Prudential Steel ULC et Al. v. Borusan Mannesmann Boru Sanayi ve Ticaret A.S. et. al. (2017 FCA 173).  This judicial review was consolidated with the SeAh Steel case discussed above.  Prudential Steel ULC and Algoma Tubes Inc, both domestic producers of OCTG, brought applications for judicial review of a statement in the final determination of dumping - the CBSA stated that the origin of green tubes would be determined based on where the full heat-treatment occurs.  This could result in Chinese green tubes being to be considered non-subject goods if the tubes were heat treated in a third country not covered by the CITT Order.  The Federal Court of Appeal only considered whether they had jurisdiction to conduct the judicial review and held they did not.    The Federal Court of Appeal held that it only had jurisdiction to dismiss and application for judicial review or set aside the entire Final Determination of dumping.  The Federal Court of Appeal held that it did not have jurisdiction  to refer the matter back to the President of the CBSA with comments.  Since the issue in the judicial review application related to the origin of green tubes, it would not impact the final determination, which would stand.

It is worth noting that all of the most recent (8) judicial reviews of CBSA and CITT cases relating to trade remedies matters have been dismissed.  Five of the cases were brought by the domestic industry and three of the cases were brought by exporters/importers:

- SeAH Steel - 2017 - OCTG - JR of CBSA decision - brought by exporter - dismissed
- Prudential Steel - 2017 - OTCG - JR of CBSA decision - brought by domestic industry - dismissed
- Essar Steel Algoma Inc. v. Jindal Steel and Power Limited (2017 FCA 166) - 2017 - Carbon Steel Plate - JR of CITT decision - brought by domestic industry - dismissed
- Prudential Steel Ltd. v. Bell Supply Company (2016 FCA 282) - OCTG - appeal of JR of CBSA advanced ruling decision - brought by domestic industry - dismissed
- Prudential Steel ULC v. Boly Pipe Co., Ltd. (2016 FCA 137) - OCTG - JR of CBSA's decision - brought by domestic industry - dismissed
- Canadian Tire Corporation, Limited v. Koolatron Corporation (2016 FCA 2) - thermal-electric coolers - JR of CITT expiry review decision - brought by an importer - dismissed
- ABB Inc. v. Hyundai Heavy Industries Co., Ltd (2015 FCA 157) - die-electric transformers - JR of CBSA decision - brought by exporter - dismissed
- Rio Tinto Alcan Inc. v. Québec Silicon Limited Partnership (QSLP) - (2015 FCA 72) - 2015 - Silicon Metal - JR of CITT decision - brought by exporter - dismissed

While none of the these cases involved a U.S. exporter, the principles would apply no differently to a U.S. exporter.  Canada's recent history of judicial reviews of trade remedies decisions demonstrates that the Federal Court of Appeal is both deferential and declines jurisdiction.  If the CBSA calculates an unreasonably high normal value, there would be limited recourse in the Canadian court system.

Has anyone in the U.S. administration reviewed the Canadian judicial review cases involving trade remedies cases before asking to remove NAFTA Chapter 19?  While there may be few antidumping and countervailing duty investigations by Canada against goods from the United States (current orders cover, Whole Potatoes, Refined Sugar, Copper Pipe Fittings, Gypsum Board) and few antidumping and countervailing duty investigations by the United States against goods from Canada, there can be cases in the future.  It is the unknown factor of what goods will be the subject of future AD/CVD cases that should cause the United States to want to keep alternative options available.  If Chapter 19 of NAFTA no longer is available, the U.S. exporters may not have a judicial review solution to incorrect dumping calculations by the CBSA or subjectivity determinations in Canadian courts and only the Government of the United States may file a request for consultations with the WTO.  This puts a burden on U.S. government resources where NAFTA Chapter 19 disputes are funded by the companies themselves.

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.

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