Copyright 2009, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on International Trade & Investment – China Focus, January 2009
The People's Republic of China (PRC) has increasingly become a target of Canadian manufacturers who complain that Chinese exporters are selling "dumped" or "subsidized" goods into Canada, thereby causing "material injury" to Canada's domestic industries. This trend continued throughout 2008. This article discusses a number of the actions involving Chinese exports which were initiated or concluded in Canada over the course of this year.
Chinese exporters may want to remain mindful of the duties that have been imposed on certain exports from the PRC because these additional duties can significantly add to the costs of doing business in Canada. Moreover, Chinese exporters should be conscious of the possibility that they, too, may find themselves subject to such investigations in the future. In order to avoid the imposition of additional duties, exporters should first take care to ensure that they do not dump products into Canada and, second, in the event that an investigation is initiated, consideration should be given to full participation in the process.
Canadian Rules on Dumping Investigations
Pursuant to international trade rules, where exporters are found to be dumping goods into Canada (that is, selling goods into Canada at prices that are lower than in China, where the goods are produced) and this dumping causes material injury to Canadian manufacturers, Canada is authorized to impose an "antidumping" duty equal to the margin of dumping, as determined by the Canada Border Services Agency (CBSA). Furthermore, if a country is found to be unfairly subsidizing its exporters, Canada is authorized to impose a "countervailing duty" equal to the amount of the subsidy expressed as a percentage of the export price of the goods. These duties remain in place for five years and can be renewed for additional terms of five years.
Dumping and Subsidy Decisions in 2008
Two dumping and subsidy cases involving goods exported from China were decided by the Canadian International Trade Tribunal (CITT) in 2008. The two inquiries in question involved Seamless Carbon and Alloy Steel Oil and Gas Well Casings and Carbon Steel Welded Pipe. Both inquiries were the result of formal complaints filed by the respective Canadian manufacturers in 2007. In both cases, antidumping and countervailing duties were ultimately imposed on imported goods from China.
The first case, which was decided on March 10, 2008, is Seamless Carbon and Alloy Steel Oil and Gas Well Casings. The goods at issue are commonly referred to as oil country tubular goods (or OCTG), and are comprised of drill pipe, casing and tubing employed in oil and gas extraction. Chinese exporters were found to be dumping the goods at a weighted average margin of 62%. The goods were also found to be subsidized by the PRC at a weighted average amount of 19% of the export price. Although the CITT found that the dumped and subsidized imports from China had not caused injury to the Canadian industry, it found that the goods were entering Canada at prices that were likely to have a significant depressing or suppressing effect on the price of Canadian goods and therefore that the Chinese imports threatened to cause injury to the domestic industry. On this basis, antidumping and countervailing duties were imposed on imports from the PRC.
The second case decided by the CITT in 2008, Carbon Steel Welded Pipe, also involved the steel industry. The goods at issue in this case, commonly referred to as standard pipe, are used in a number of applications including plumbing and heating, air conditioning, and sprinkler systems for fire protection. The CBSA estimated that the weighted overall average margins of dumping and subsidy were 141% and 73%, respectively. In a decision released in August 2008, the CITT concluded that these dumped and subsidized goods, when imported from the PRC, caused material injury to the domestic industry. Accordingly, antidumping and countervailing duties were imposed.
Dumping and Subsidy Allegations Made in 2008
Two cases against Chinese exporters were filed in 2008 and are currently underway at the CITT. The first such case is Thermoelectric Containers. In November 2008, the CITT conducted a formal hearing into the dumping and subsidization of thermoelectric containers originating in, or exported from, the PRC. This formal hearing followed the CBSA's preliminary conclusion that 100% of the Chinese imports of thermoelectric containers were dumped into the Canadian market at an estimated overall average margin of 71%, the CBSA finding that all subject goods imported from the PRC benefited from unfair subsidies and the CITT's preliminary ruling that these factors provided a reasonable indication of injury to the domestic industry. On November 10, 2008, the CBSA made a final determination of dumping and subsidization in respect of one exporter named Mobicool (16.7% dumping margin, 0.8% subsidy margin) and all other exporters (37% dumping margin, 14.1% subsidy margin). A decision in this case will be issued on December 11, 2008, and the reasons for the decision will be released on December 29, 2008.
The second ongoing case involving Chinese goods, Aluminum Extrusions, is expected to be heard by the CITT in early 2009. The CBSA estimated at the time of initiation of the dumping and subsidy investigations that 93.5% of the subject goods were sold into the Canadian marketplace at dumped prices and the estimated overall weighted average margin of dumping was 40.5%. Moreover, the CBSA found that between January 1, 2007 and June 30, 2008, 89.5% of goods imported from the PRC benefited from subsidies, and the amount of those subsidies was on average equal to 26% of the export price of the goods. The CITT made a preliminary determination that these factors provided a reasonable indication of injury to the domestic industry. In a preliminary determination made on November 17, 2008, the CBSA estimated the average margin of dumping to be 102% and the amount of subsidy to be 17%, thereby imposing provisional duties amounting to 119% on goods imported from the PRC.
Re-Investigations Into Existing Dumping Findings
As a general rule, every 12 to 18 months after the imposition of antidumping or countervailing duties, the CBSA conducts re-investigations into existing findings. The re-investigations represent an opportunity for exporters to provide updated information about the variables that affect the normal values of their dumped products. The CBSA sends out questionnaires to exporters and requests that they update their manufacturing information so that the CBSA can recalculate the antidumping and countervailing duties imposed on their products. It is thus an opportunity for exporters to obtain lower normal values (and lower antidumping duties) or to demonstrate that they are not actually dumping products. It is important to note that exporters are not required to wait for the CBSA to initiate a re-investigation to update their manufacturing information. Where an exporter becomes aware of changes to domestic prices, market conditions or costs associated with production and sales, they should inform the CBSA so that normal values can be reviewed and updated, where necessary, to reflect current conditions.
In 2008, two re-investigations were initiated and three were concluded that involved Chinese-origin goods. The two that were initiated in the year were in respect of the following goods: Certain Carbon Steel and Stainless Steel Fasteners, and Laminate Flooring. At the time of writing, these re-investigations had not been concluded.
The CBSA concluded, during 2008, re-investigations involving the following Chinese goods: Wood Slats, Bicycles and Copper Pipe Fittings. In the Wood Slats re-investigation, the CBSA did not receive any additional information from exporters and therefore normal values were determined in accordance with a ministerial specification, which was calculated by advancing the export price by 120%. In the CBSA's re-investigation into Bicycles, 21 exporters from the PRC were permitted to request interim normal values. Interim values were revoked for one Chinese company that did not provide sufficient information on normal values in response to the CBSA's request. The Copper Pipe Fittings re-investigation resulted in new normal values for two exporters from the PRC. For all other exporters, normal values will be determined in accordance with a ministerial specification, which is calculated by advancing the export price of the goods by 242%. Also, during the Copper Pipe Fittings re-investigation, the CBSA indicated that two exporters from the PRC already have specific amounts of subsidy. For all other exporters of subject goods from the PRC, the amount of subsidy is equal to 17.73 Chinese Renminbi per kilogram.
Reviews Upon Expiration Of Five-Year Duty Terms
An expiry review may be initiated by the CITT, where warranted, near the end of a five-year term during which antidumping and/or countervailing duties have been imposed on certain goods imported or exported into Canada. The expiry review process consists of:
- a request for submissions from industry participants on whether an expiry review should be initiated;
- an investigation by the CBSA concerning the likelihood that the expiration of duties will result in a continuation or resumption of dumping; and
- an inquiry by the CITT of whether the expiration of the duties will result in injury or retardation to the Canadian industry.
In 2008, only one expiry review was decided, Certain Carbon Steel Pipe Nipples and Adaptor Fittings, which concerned exports from the PRC. The CBSA concluded that the expiry of duties would likely result in the continuation or resumption of dumping by exporters from the PRC. An analysis of the evidence on record indicated that goods continued to be dumped even while the finding was in effect and, in spite of the antidumping duties, Chinese producers of the subject goods had shown a renewed interest in selling to the Canadian market. Moreover, because of the lack of participation of exporters in the review process, the CBSA inferred that exporters were likely not able to sell goods to Canada at non-dumped prices. The CBSA also gave some consideration to the fact that antidumping and countervailing duties existed in other jurisdictions in respect of similar goods from the PRC.
Accordingly, the CITT conducted an inquiry to determine whether the resumption of dumping would likely result in injury or retardation to the Canadian industry. In considering the likely impact on the domestic industry, the CITT took into account economic factors, including a potential decline in output, sales, market share, profits, productivity, return on investments and utilization of production capacity and potential negative effects on cash flow, inventories, employment, wages, growth or the ability to raise capital. Despite a slowdown in the residential housing sector, the CITT was of the view that Canada was likely an attractive export destination and if the order were rescinded, the subject goods would likely enter Canada in substantial volumes and at very low prices. Because of stagnant demand and the likely presence of significant volumes of low-priced imports from the PRC, the CITT concluded that the domestic industry was likely to experience significant lost sales volumes and market share, and significant price depression, as well as price suppression in the event that input costs increase. Thus, the resumption of dumping was likely to cause material injury to the domestic industry and the CITT continued its finding in respect of carbon steel pipe nipples and adaptor fittings.
The only expiry review initiated (but not concluded) in 2008 affecting imports from the PRC concerns Wood Slats. The review was announced in August 2008, following which an investigation was formally initiated on November 10, 2008. The public hearing in this matter is scheduled to occur in May 2009.
At any time after the making of an order or finding pursuant to an injury inquiry, the CITT may, on its own initiative or by request, conduct an interim review of any aspect of the order or finding. After receiving a request for an interim review, the CITT must first decide whether the interim review is warranted. This decision is usually reached after considering whether there is a reasonable indication that sufficient new relevant facts have arisen since the issuance of the existing finding or order, or that there has been sufficient change in the circumstances that led to the finding or order in question. An interim review may also be warranted where there are sufficient relevant facts that, although in existence during the previous inquiry or review, were not put into evidence and were not discoverable by the exercise of reasonable diligence at that time.
In 2008, the CITT conducted an interim review with regards to the dumping and subsidizing of Certain Fasteners imported from the PRC and Chinese Taipei (Taiwan). The review was in response to a request from a Canadian window and doors company for an exclusion from the CITT's injury finding for certain patented screws imported from Taiwan. Having satisfied the CITT that an interim review was warranted, a hearing took place by way of written submissions. After considering the arguments of the applicant, one company that represented the domestic industry, one importer and one Taiwanese exporter, the CITT was of the view that granting the exclusion for the patented screw would potentially restrict competition between the applicant and other end users and that broadening the exclusion to cover generic imported screws would have an injurious effect on the domestic industry, notwithstanding consent to the exclusion by the domestic industry. For this reason, the CITT opted not to amend its earlier decision.
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.