China: New Twist On Law Of Dumping Of Goods From State-Influenced Economies

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade & Investment–China Focus, December 2009

Producers and importers of Chinese and Vietnamese goods, and their competitors, take note: the analysis of whether the goods are being dumped in Canada may take on a whole new complexion following the decision of the Federal Court of Appeal in Tianjin Pipe (Group) Corporation v. TenarisAlgomaTubes Inc.

International and domestic law prohibits injury caused by the "dumping" of goods, which occurs when imported goods are sold at less than "normal" value. Under Canada's Special Import Measures Act (SIMA), the Canada Border Services Agency (CBSA) usually determines normal value by assessing the fair costs of production of the actual goods in question, with reference to other producers in the same country.

However, section 20 of the SIMA provides that where goods are imported directly from a prescribed country (currently only China and Vietnam), if in the CBSA's opinion the price of the goods is "substantially determined" by the government of that country, then normal value is determined by reference to goods produced in another country, other than Canada.

The significance of this section is apparent. Under the default regime, normal value may be quite low if the goods are produced in a country where macroeconomic conditions have a significant downward effect on the costs of production, such as inexpensive labour and limited government regulation. Under the alternative analysis prescribed by section 20 of the SIMA, the normal value of the goods may not reflect those macroeconomic conditions. Thus, Chinese and Vietnamese goods stand to lose significant price advantages if the CBSA is of the opinion that the price of the goods is "substantially determined" by the government.

The question in the Tianjin Pipe case was whether the CBSA had erred in its opinion that the price of certain carbon or alloy steel oil and gas well casing had been "substantially determined" by the Chinese government. The CBSA concluded that the cumulative effect of the Chinese government's administrative, regulatory, and tax measures had a considerable impact on the Chinese steel industry through means other than competitive market forces. First, the CBSA found that the government exerted significant control of the sector through state ownership, including control of buyers, suppliers, and other industry participants. Second, the CBSA found that the government exerted significant control through the China Iron and Steel Association. The CBSA found that the association was a government body because its functions replaced a government ministry, the Communist Party Secretary was a member of its top management, and its stated purpose included strengthening the government's control and administration of the sector. Last, the CBSA found that the Chinese government exerted significant control of the sector through the China National Iron and Steel Industry Development Policy. The CBSA found that the policy was more than a mere guideline, as the administration and enforcement of the policy included penalties for its violation and a long list of parties who would be held accountable for such violations.

Before the Federal Court of Appeal, the producer, supported by the Chinese government as intervener, argued that the phrase "substantially determined" could only apply if the Chinese government had directly caused the price of goods to be set at a certain level, below the cost of production. The court dismissed this argument, holding that the phrase "substantially determined" captures the various ways in which governments could exert a determinative influence on pricing, directly or indirectly. The court also noted that by granting the CBSA the power to decide in its "opinion" whether prices have been substantially determined, Parliament gave the CBSA discretion which ought to be given considerable deference by the court. As such, the court dismissed the challenge to the CBSA's determination.

This case may have significant ramifications for allegations of dumping of Chinese and Vietnamese goods in Canada. The court has affirmed the CBSA's authority to take a broad view of whether the government of China or Vietnam (or any other country that is prescribed in future) has substantially determined the domestic price of goods. In coming to that opinion, the CBSA is empowered to look behind what foreign governments say about their domestic policies, and to consider a broad range of evidence concerning measures that directly or indirectly affect the price of the subject goods. If the CBSA applies this analytical framework more frequently to the swelling imports of Chinese and Vietnamese goods, determinations of dumping of such goods may become more common in Canada.

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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