On April 3, 2019, the Canadian steel industry received news that may have a significant impact on business activities. On that day, the Canadian International Trade Tribunal determined that safeguard duties should apply to only two out of the seven steel product categories on which domestic producers were seeking tariff protection. According to the Tribunal, only imports of stainless steel wire and heavy plate were causing serious injury to domestic producers. On the other five product categories, the Tribunal was not convinced that the domestic producers met the requisite legal standard of injury.
This determination made it all but impossible for the Government of Canada to continue to impose the temporary safeguard duties that had been in place since October 2018, beyond the legal deadline of April 26, 2019, except on stainless steel wire and heavy plate. Notwithstanding some heavy lobbying by the domestic steel industry, Canada removed the duties on all but the two categories of steel the Tribunal found to be sufficiently injurious.
In the wake of the Tribunal's finding, the Government of Canada continued to express concern that sharp increases in low cost steel imports may harm the domestic steel industry. Intensive consultation with the Canadian industry to improve Canada's trade remedy regime were announced, with the stated purpose of ensuring Canada's trade remedy system allowed quick reactions to an increasingly dynamic, volatile and interconnected global marketplace.
Shortly after the announcement of this consultation, on May 17, 2019, the United States and Canada agreed to remove all tariffs and retaliatory tariffs on steel and aluminum. While the removal of these tariffs are viewed as a positive development for the Canadian industry, concerns remain about the diversion of offshore steel from the US to Canada, as a result of US steel and aluminum tariffs that remain on imports from other countries.
In response to continued concerns about the vulnerability of the Canadian steel industry, Canada has amended the Customs Tariff, proposed additional amendments to the Special Import Measures Regulations, and clarified certain procedures relating to the assessment anti-dumping rates and re-investigations and reviews.
1. Amendments to the Customs Tariff
On June 5, 2019, Canada introduced legislation that has since entered into force, to amend the Customs Tariff. Previously, the Customs Tariff stated that goods that had been subject to safeguard measures in Canada could not be subject to additional safeguard measures for a period of two years after the initial measures. The amendment repealed that two-year prohibition, and at the same time, replaced it with an identical provision that enters into force two years after the date the amended legislation has entered into force. The effect being, that additional safeguard measures may be placed on goods that had been previously subject to safeguard tariffs for a period of two years.
The May 17, 2019, agreement between Canada and the United States lifting the US tariffs (and the corresponding countermeasures imposed by Canada) allows for the re-imposition of the steel and aluminum tariffs, after consultation, in the event that trade surges beyond historic trade volumes over a period of time. Accordingly, safeguard and other tariffs on steel could well return earlier than initially expected. The amendments to the Customs Tariff will allow Canada to re-impose safeguard tariffs on steel and aluminum in the event a harmful surge in imports.
The amendment to the Customs Tariff suspending the two-year standstill is questionable under Canada's WTO obligations in the Agreement on Safeguards. Canada has stated that such measures are "needed to stabilize Canada's steel market, and further protect Canadian steel workers and producers from global instability and the harmful effects of potential surges in imports", but they are difficult to square with the terms of the Agreement on Safeguards. Should Canada trigger safeguards on steel products within two years of the previous round, it is likely that Canada will face stiff WTO compliance objections from its trading partners.
2. Proposed amendments to the Special Import Measures Regulations
On June 20, 2019, Canada proposed amendments to the Special Import Measures Regulations that are currently subject to a comment period. These amendments relate to the Canadian Border Services Agency's (CBSA) ability to calculate costs of production in anti-dumping investigations, relating to the following:
- Transaction between associated parties where inputs are sold below cost, and
- Where proper product comparisons cannot be made in "particular market situations" (namely, where government involvement in the marketplace is such that input acquisition costs do not reasonably reflect the actual cost of the input).
In relation to associated parties, the proposed amendment will allow the CBSA to calculate inputs using the highest observed transfer price between parties, the actual costs to the supplier, or a reasonable benchmark determined in the country of export.
In calculating the value of inputs in situations where a "particular market situation" prevails, the proposed amendment allows for a hierarchy of alternatives to determine the costs of inputs—depending on the information available—and whether an alternative provides a better comparison. In such situations, the proposed amendments will calculate the costs of inputs based on the following hierarchy:
- The price of the same or substantially the same inputs that are produced in the country of export, and sold to the exporter or other producers in the country of export;
- The price of the same or substantially the same inputs that are produced in the country of export, and sold from the country of export to a third country;
- The price of the same or substantially the same inputs determined on the basis of the published prices of those inputs in the country of export;
- The price of the same or substantially the same inputs that are produced in a third country, and sold to the exporter or other producers in the country of export, adjusted to reflect the differences relating to price comparability between the third country and country of export; or
- The price of the same or substantially the same inputs determined on the basis of the published prices of those inputs outside the country of export, adjusted to reflect the differences relating to price comparability with the country of export.
The proposed changes to the Special Import Measures Regulations were published in the Canada Gazette, Part I, on July 20, 2019. Interested parties have until August 5, 2019, to provide feedback on the proposed changes.
3. Enhanced clarity in CBSA procedures for re-investigations and normal value reviews
Additionally, to provide greater clarity on re-investigations and normal value reviews, the CBSA updated Memorandum D14-1-8, which now details the specific factors considered for the initiation of re-investigations and normal value reviews.
The update now makes it clear to Canadian industry importers and exporters that the CBSA will take into account the following criteria when determining whether and when to start a re-investigation or normal value review:
- The volume of imports of the subject goods and fluctuations in import volume;
- The elapsed time since values were last issued; the nature of the subject goods;
- The presence of new models or products imported;
- The presence of new exporters of the subject goods;
- Changes in the selling prices in the exporter's home market;
- Changes in the selling prices in the exporter's third country export markets;
- Changes in the exporter's costs;
- Fluctuations in the currency exchange rate;
- Changes in the nature or amount of subsidies;
- Changes in the channels of distribution for the goods sold to Canada;
- Changes in any other manner in which the goods were sold to Canada;
- The need to review the export prices, such as where exporters are associated with the importers;
- The number of requests for re-determination;
- The timing of the next potential expiry review;
- The resources available; and
- Any other relevant considerations.
Based on the CBSA's analysis, it will consider commencing a normal value review or re-investigation in the following scenarios:
|Normal value reviews to be commenced||Re-investigations to be commenced|
The update also provides guidance on when duties may be applied retroactively, where exporters failed to adjust prices when their normal values changed due to changes in cost.
Those industries that rely on the protection of Canada's trade remedies laws will largely welcome the recent changes. For importers and exporters, it is important to take note of these changes and clarifications, as they may impact their business activities. The Dentons' Trade, WTO and Customs group is ready to assist clients, whether domestic producers, importers or foreign exporters, to understand the impact of these changes on their business.
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