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McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 1
McCARTHY TÉTRAULT
Canadian Anti-dumping and Countervail: How Chinese
Companies Can Protect Themselves
Simon V. Potter [email protected] Greenwald [email protected]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 2
China-Canada Trade
Source: Roy, Francine, “Canada’s Trade with China” (June 2004) Statistics Canada No. 11-624-MIE No. 007, p. 5.
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 3
Future Issues
Increased market penetration by China leading to increased concern by domestic producers
Likely increased use of anti-dumping and countervailing duties (so far only 2 Canadian CVD cases against China)
Possible increased use of safeguards
Increased use by China of WTO mechanisms
Increased exposure of China to WTO complaints
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 4
Canadian Trade Remedies and Procedures
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 5
Overview of Trade Remedies
Anti-dumping
Anti-subsidy (countervail)
Safeguards
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 6
Key Concepts in Anti-Dumping and Countervail
Occurrence of dumping/subsidization
Injury to Canadian industry
Dumping/subsidization has caused or threatens to cause material injury to a domestic industry, or material retardation of the establishment of a domestic industry
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 7
Definition of Dumping
Goods are “dumped” when they have been sold into Canada at prices below the exporter’s home market selling price or below the exporter’s cost of production plus an amount for profit[s.2 (1) Special Import Measures Act (SIMA)]
Apply duty equal to margin of dumping
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 8
Definition of Subsidization
“[A] financial contribution by a government of a country other than Canada . . . that confers a benefit to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods”, including domestic price supports [s. 2(1) SIMA]
Financial contribution includes direct transfer of funds, foregoing of amounts due to government, provision (by government or on its direction) of goods and services other than general infrastructure[s. 2(1.6) SIMA, mirror of Article 1.1 of SCM Agreement: both lists are exhaustive]
Excludes exemptions from or remissions of taxes and duties applicable to goods sold domestically
Benefit (discussed later) to recipient is measure of subsidy [mirror of Article 14 of SCM]
Apply duty equal to, no greater than, margin of subsidization[s. 7(2) SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 9
Types of Subsidies
There are 3 types of subsidies under the Special Import Measures Act:
Non-Actionable Non-specific subsidy (prohibited subsidies are deemed
specific) Subsidy related to research and development,
disadvantaged regions or environmental standards
[s. 2(1) SIMA]• Pursuant to Article 31 of the SCM Agreement, Part IV, dealing with non-
actionable subsidies related to research and development, environmental protection and regional development, expired on December 31, 1999.
• The Non-actionable subsidies clause in s. 2(1) SIMA Act has been suspended by an Order issued under s.98 of SIMA.
• Conclusion: SIMA no longer has category of non-actionable subsidies, but Canada is open to discussing revival of this category.
Actionable Specific subsidy (complainant must prove specificity)
Prohibited An export subsidy, or A subsidy or portion of a subsidy that is contingent, in whole
or in part, on the use of goods produced in, or originating from, that country of export
[s. 2(1) SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 10
Applicable Laws and Regulations
Canada was the first country with an anti-dumping regime (since 1904)
Current Legislation: Special Import Measures Act, R.S. 1985,
c. S-15 (SIMA)
Special Import Measures Regulations, SOR/84-927
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 11
Agency Roles and Coordination
Canada Border Services Agency (CBSA) http://www.cbsa-asfc.gc.ca/menu-e.html
Responsible for dumping/subsidization investigation
Canadian International Trade Tribunal (CITT) http://www.citt.gc.ca
Responsible for inquiry into injury and causation
Investigation and inquiry process and timeline charts (hand-out)
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 12
Process for AD and CVD
Key Stages:
Properly documented complaint
CBSA initiation of investigation
CITT preliminary decision of injury
CBSA preliminary dumping/subsidy determination
CBSA final dumping/subsidy determination
CITT final decision of injury
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 13
Initiating the Investigation
CBSA receives a written complaint from the domestic industry (or initiate on their own or on advice from the CITT)
CBSA must be of the opinion that there is evidence that:
the goods have been dumped or subsidized; and
discloses a reasonable indication that the dumping or subsidizing has caused injury or retardation or is threatening to cause injury
[s. 31.1 SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 14
Standing of the Complainant
Possible complainants Canadian producer of like goods that
are identical or similar to the competing imports
Association of such producers on behalf of its members
Support required from producers representing at least 25% of Canadian production of like goods
Support for complaint must exceed opposition within the Canadian industry
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 15
Content of the Complaint
Information on:
Canadian-produced goods
Competing imports
Domestic industry
Conditions in the Canadian market
Evidence of:
Dumping or subsidizing of the imported goods
Resulting injury to Canadian industry
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 16
Initiation of AD/CVD Investigation
CBSA decision on whether or not to initiate is based on:
information contained in the complaint
CBSA's own information
submissions from other parties
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 17
The Investigation by the CBSA In anti-dumping investigations, questionnaires
are issued to: identified exporters/producers from country of export,
and identified Canadian importers
In subsidy investigations, questionnaires are issued to:
identified exporters/producers from country of export, and
the Government of country of export
Meetings/verification visits may take place during the investigation
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 18
The Investigation: Confidential Information
A party wishing to keep information or evidence confidential must provide (i) a statement designating the information as confidential, and (ii) a non-confidential edited version of the information
SIMA provides that information designated as confidential may be disclosed to parties’ counsel
Counsel must sign a confidentiality undertaking CBSA may refuse to disclose where it might result in
material harm to the business or affairs of the party designating the information as confidential
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 19
CBSA Investigation: Possible Results
Termination of investigation If margin of dumping or amount of subsidy is
“insignificant” (s.35(1)(a)(ii) and s.2(1) SIMA) or If actual and potential volume of dumped or
subsidized goods is “negligible” (s.35(1)(a)(iii) and s.2(i) SIMA) or
If CITT concludes that evidence does not disclose a reasonable indication that the dumping or subsidization has caused or threatens injury
Preliminary determination of dumping/subsidization and application of provisional duties on imports of subject goods (and final CITT injury inquiry begins)
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 20
The Dumping Calculation
Normal value
Export price
Margin of dumping
Special rules
Sales between related parties
Exporters from non-market economy (normal value)
Key issue for China
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 21
Dumping: Presumption of Market Economy
Canada used to treat China as a non-market economy in anti-dumping investigations
Between 1997 and 2003, China treated as a non-market economy in 9 of 10 anti-dumping cases
SIMA provides that Chinese industries will be considered to be operating under non-market conditions where:
(i) domestic prices are substantially determined by the government and (ii) there is sufficient reason to believe that
prices are not substantially the same as they would be if they were determined
in a competitive market [s.20 SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 22
Dumping: Presumption of Market Economy (continued)
CBSA policy (June 2004): Canada now presumes that the Chinese
exporter is operating in a market economy unless evidence suggests otherwise
If Canadian complainant proves non-market conditions, normal values will be based on:
Price of like good sold by producers in a surrogate country, adjusted for price comparability;
Cost of producing and selling like goods plus a reasonable amount for profit in a surrogate country; or
Selling price in Canada of like goods imported from a surrogate country
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 23
Dumping: Market Economy Case Law
Xanthates from the People’s Republic of China, CBSA Final Determination (February 3, 2003)
CBSA concluded that it was not provided with sufficient information to determine whether or not China’s Xanthates industry operated under market conditions, but
CBSA determined normal values on the basis of Ministerial Specification (in this case, based on cost of production and profit estimates provided by complainant)
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 24
Dumping: Market Economy Case Law (continued)
Automotive Laminated Windshields from the People’s Republic of China, CBSA Final Determination (July 31, 2002)
CBSA determined that China’s automotive replacement windshield industry operates under market conditions
CBSA determined normal values either on the basis of selling prices in China or on the basis of the costs of producing and selling the goods in China, plus a reasonable amount for profit
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 25
Dumping: Market Economy Case Law (continued)
Wood Venetian Blinds and Slats, CBSA Final Determination (May 17, 2004) CBSA was not provided with any
complete submissions from Chinese exporters
CBSA determined normal values on the basis of Ministerial Specification
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 26
Dumping: Market Economy Case Law (continued)
Certain Fuel Tanks from the People’s Republic of China, CBSA Final Determination (August 3, 2004)
CBSA rejected allegations that the Chinese fuel tank industry was operating under non-market conditions
CBSA determined final normal values on the basis of the Chinese costs of producing and selling the goods, plus a reasonable amount for profit
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 27
Dumping: Market Economy Case Law (continued)
Outdoor Barbecues, CBSA Termination of Investigation (December 3, 2004)
CBSA concluded that it was not able to determine an amount for profits for co-operative exporters as there was no publicly available information regarding the production and sale of barbecues
CBSA determined normal values on the basis of Ministerial Specifications (in this case, on the basis of the cost of production and selling the goods and a reasonable amount for profits)
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 28
Dumping: Market Economy Case Law (continued)
Carbon Steel and Stainless Steel Fasteners, CBSA Preliminary Determination (September 10, 2004) For some exporters, CBSA calculated
preliminary normal values on the basis of the weighted average prices for sales to unrelated customers in China
For other exporters, CBSA determined preliminary normal values on the basis of the cost of producing and selling the goods in China plus a reasonable amount for profit
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 29
The Subsidy Calculation –Step 1: Does a subsidy exist?
In determining whether a program has resulted in a subsidy under SIMA, the Canadian government considers whether:
(i) there has been a financial contribution by a government of a country other than Canada; s. 2(1) SIMA] and
(ii) there was a benefit conferred to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. [s. 2(1) SIMA]
If a subsidy is found to exist, it may be subject to countervailing duties if it is specific (prohibited subsidies are deemed specific: s. 2(7.2)(b) SIMA)
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 30
The Subsidy Calculation –Step 1: Does a subsidy exist?
(i) Financial Contribution: a financial contribution exists in 4 cases where: a) practices of the government involve the direct transfer of funds or
liabilities or the contingent transfer of funds or liabilities; b) amounts that would otherwise be owing and due to the
government are exempted or deducted; or amounts that are owing and due to the government are forgiven or not collected;
c) the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
d) the government permits or directs a non-governmental body to do anything referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it
[s. 2(1.6) of SIMA and Part II of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 31
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: Each type of specific subsidy, as
classified under the SIMA regulations (SIMR), has its own formula for calculating benefits, with benchmark being fair market value or prevailing market conditions in the country of subsidization [mirror of Article 14(d) of SCM Agreement]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 32
The Subsidy Calculation –Step 2: How to calculate a subsidy?
SIMR provides specific rules for benefit calculation in cases of:
a. Grantsb. Loans at preferential ratesc. Loan guaranteesd. Income tax credits, refunds and exemptionse. Deferral of income taxesf. Excessive relief of duties and taxesg. Acquisition of sharesh. Purchase of goods by governmenti. Provision of goods and Services by
Government
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 33
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: (a) For a subsidy classified as a Grant, or a transfer of
liabilities or a forgiveness of debt:
Benefit = grant amount/volume of subsidized goods
[s. 27 of SIMA regulations]
Re: the Subsidizing of Certain Stainless Steel Wire Originating in or Exported from India - 4258-123 AD/1292, 4218-14 CV/98, July 15, 2004
- CBSA final determination classified subsidy program asa grant and used grant formula under s. 27(1.2) of SIMR
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 34
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: (b) For a subsidy classified as a Loan at a Preferential
rate, CBSA will inquire as to comparable commercial loan rates and as to the total volume of subject goods for which the exporter has used the loans, and
Benefit = interest savings/applicable volume[s. 28 of SIMR]
Re: the Subsidizing of Certain Stainless Steel Wire Originating in or Exported from India – 4258-123 AD/1292, 4218-14 CV/98, July 15, 2004
- CBSA final determination classified subsidy program as a loan and used loan formula under s. 28 of SIMR
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 35
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: (c) For a subsidy classified as a Loan Guarantee,
the CBSA will inquire as to the interest rate the exporter would have had to pay commercially in the absence of the guarantee, and as to the volume of goods for which the exporter has used the loan, and
Benefit = Interest savings/Applicable volume
The interest savings are calculated as a present-value under a hierarchy of alternative methodologies
[s.31.1 of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 36
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: (d) For a subsidy classified as an Income Tax Credit,
Refund or Exemption, if the credit refund or exemption is contingent on the export of goods,
Benefit = amount/quantity exported[s. 32 of SIMR]
Re: the Subsidizing of Certain Stainless Steel Wire Originating in or Exported from India - 4258-123 AD/1292, 4218-14 CV/98, July 15, 2004
- CBSA final determination classified subsidy program as an income tax credit and used income tax credit formula under s. 32 of SIMR
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 37
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: (e) For a subsidy classified as a Deferral of
Income Taxes, the CBSA inquires as to the interest which would have been payable on a commercial loan to pay the undeferred tax and if the deferral is contingent on export performance,
Benefit = Present value of interest savings/amount exported
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 38
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit:
(f) For a subsidy classified as a Excessive Relief or Remission of Duties and Taxes,
Benefit = (Relief - Duties on taxes originally paid)/Amount of applicable
goods exported
[s.35 and s.35.01 of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 39
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: (g) For a subsidy classified as a
government’s Acquisition of Shares, the CBSA inquires as to whether the government paid too high a price for those shares, and
Benefit = (Price-FMV)/Volume of subsidized goods
[s. 35.1 of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 40
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit:
(h) For a subsidy classified as a Purchase of Goods by Government
Benefit = (Price – FMV)/Volume of subsidized goods
[s.35.2 of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 41
The Subsidy Calculation –Step 2: How to calculate a subsidy?
(ii) Benefit: (i) For a subsidy classified as Goods or
services provided by a government,
benefit = (FMV-price)/ volume of subsidized goods
[s. 36 of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 42
The Subsidy Calculation: Issue of Specificity
(iii) Issue of Specificity:
A subsidy is specific where it is:
(i) limited to a particular enterprise or industry or group of industries within the jurisdiction of the authority granting the subsidy; or
(ii) a prohibited subsidy (i.e. its granting is contingent on export performance)
[s. 2(7.2) of SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 43
The Subsidy Calculation: Issue of Specificity
Determination of Specificity by the CBSA:
Notwithstanding that a subsidy may not be limited in the manner referred to on the previous slide, the President of the CBSA may determine the subsidy to be specific having regard to whether:
(i) there is exclusive use of the subsidy by a limited number of enterprises;
(ii) there is predominant use of the subsidy by a particular group of enterprises;
(iii) disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and
(iv) the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available
[s. 2(7.3) of SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 44
The Subsidy Calculation: Issue of Specificity
Re Refined Sugar Originating in or Exported from the U.S., Denmark, Germany, Netherlands, U.K. and Korea and the Subsidizing of Refined Sugar Originating in or Exported from the E.U
Inquiry No.: NQ-95-002, November 6, 1995
-CITT finds that the subsidizing of certain sugar products originating in or exported from the European Union (a) has not caused material injury or retardation to the domestic industry; however (b) is threatening to cause material injury to the domestic industry
-calculated subsidy using ministerial discretion under s. 2(7.3) of the SIMA Act
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 45
The Subsidy Calculation: Issue of Specificity
Additional Considerations:
Where any of the factors listed in s. 2(7.3) is present, the CBSA President must consider whether its presence is due to:
(i) the extent of diversification of economic activities within the jurisdiction of the granting authority, or
(ii) the length of time that the subsidy program has been in operation
If the CBSA President is of the opinion that the presence of any factor is due to one of these reasons he may find the subsidy not to be specific. [s. 2(7.4) of SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 46
The Subsidy Calculation: Issue of Specificity
Non-specific subsidy:
A subsidy is not specific where the criteria or conditions governing eligibility and the amount of the subsidy are:
(i) objective;
(ii) set out in a public document; and
(iii) applied in a manner that does not favour or is not limited to a particular enterprise or group of enterprises
[s. 2(7.1) of SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 47
The Subsidy Calculation: General Deductions from Calculations
The Canadian government will deduct the following costs from the initial calculation of the amount of subsidy:
(i) the amount of any fee or other expense necessarily incurred by the recipient of the subsidy in order to obtain the subsidy;
(ii) the amount of any tax, duty or other charge levied by a government against the recipient of the subsidy for the purpose of offsetting the subsidy; and
(iii) the amount of any loss in the value of the subsidy that results from the deferred receipt of the subsidy where the deferral has been imposed by the government that granted the subsidy
[s. 26 of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 48
Submissions
Interested persons, namely producers, exporters, importers, purchasers and retailers, may make submissions throughout the investigation
Submissions may be made orally or in writing
Submissions may be confidential
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 49
Verification and Evidence
If CBSA starts an investigation, it sends questionnaires to exporters, importers and, in subsidy investigations, the foreign government involved
Where sufficient information has not been provided to enable determination of the amount of the subsidy, or the regulations prescribe no methodology, the amount shall be determined in a manner specified by the Minister of National Revenue
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 50
Upstream Subsidies, Downstream Effects
The logic of subsidy calculation was challenged, among others, in two U.S. cases:
In Fresh, Chilled and Frozen Pork from Canada, No. DS7/R – 38S/30, the U.S. DOC had to calculate how much of the upstream subsidy given to Canadian pig farmers (i.e. for feed and transportation) found its way downstream into the pork meat reaching the U.S.
In Re Certain Softwood Lumber from Canada, No. WT/DS257/AB/R (January 19, 2004), the U.S. DOC had to calculate how much of the upstream subsidy given to tree harvesters found its way into exported lumber (including for example, bed frames)
Both cases involved:• The calculation of subsidy effects going into downstream
products which are not subject goods or not exported• Debate as to dilution of the downstream effect as the
subsidized product enters markets where competitive prices are unaffected by the subsidy. In Softwood (par.143), the WTO held that the DOC had to perform a “pass-through analysis” and not presume that upstream subsidies to the production of an input also bestow a benefit, downstream, to the unrelated producer of output.
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 51
Upstream Subsidies, Downstream Effects (Continued)
Upstream subsidies are contemplated by Articles 10, 13 of the SCM Agreement and Article VI (3) of the GATT 1994
S. 2(1) SIMA Act refers to subsidies paid “indirectly”
To date, no Canadian subsidy case has yet dealt with the issue of upstream subsidies
However, Canada’s submissions in the Softwood Lumber case reveal Canada’s commitment to its WTO obligations with respect to the calculation of subsidies by insisting on an upstream subsidy analysis with respect to indirectly subsidized goods
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 52
Negligibility
If the CITT or CBSA determines that the volume of dumped or subsidized goods from a country is negligible, the Tribunal terminates its inquiry in respect of those goods
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 53
Negligibility (Continued)
The volume of goods dumped by a country is “negligible” if:
It is less than 3% of the total volume of imports into Canada from all countries of goods of the same description
Unless: Three or more countries, each exporting
less than 3%, together exceed 7% of the total volume of imports into Canada of goods of the same description. (For developing countries, the SMC Agreement sets these thresholds at 4% and 9% and the SIMA directs the CBSA to take this into account).
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 54
Insignificance
The amount of the subsidy must not be “insignificant” • An insignificant subsidy amount is less than 1%
of the export price of the goods [s. 2 SIMA] However, the threshold insignificance level for
developing countries is 2%
• Any investigation involving a developing country will likely be terminated if the total amount of subsidy for that country does not exceed 2% of the value of the goods [s. 41.2 SIMA, referring to paras. 10 & 11, Article 27 SCM Agreement]
• China is a developing country for purposes of Article 27 [Source: DAC OECD classified China as a middle-income developing country. Date: 01/01/03]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 55
Determination of Injury
Has the domestic industry suffered material injury or retardation? Factors of injury set out at s. 37.1 and 37.2 of SIMR. Examples:
Lost sales or market share
Price suppression or erosion
Financial conditions: profitability, cost recovery and so on
Is injury being threatened? “circumstances in which the dumping or
subsidizing of goods would cause injury are clearly foreseen and imminent”
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 56
Determination of Injury
If the CITT finds that the dumping/ subsidization caused or threatens injury, duties will be imposed for a five-year period [s.42 of SIMA]
CITT conducts extensive hearing following extensive questionnaires
Subject to expiry review after five years
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 57
Determination of Causation
Causation issues: non-dumping/non-subsidization factors
Product quality and consumer preference Poor business decisions Economic conditions or other external factors,
including competitive factors Non-subject goods causing injury
Cumulation Injury need not be found to have been caused or
threatened by imports from each country concerned CITT will “cumulate” unless conditions of
competition make that inappropriate [s. 42(3)(4) of SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 58
Public Interest Inquiry
An inquiry may be initiated on request of an interested person to review public interest considerations related to the imposition of a duty resulting from a CITT injury inquiry [s. 45 SIMA]
CITT makes recommendations to the Minister of Finance
With Cabinet approval, the Minister may reduce the CVD through an Order in Council [s. 14, 45 SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 59
Public Interest Inquiry
Public Interest concerns include:
• A CVD imposing a burden on Canadian competitors
• A CVD affecting availability of supply
• Re Certain Baby Food Public Interest Inquiry, No. PB-98-001 – report issued by CITT recommending reducing anti-dumping duty by two-thirds
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 60
Judicial Review: do the determinations respect Canadian law?
Determinations of the CBSA and of the CITT are subject to judicial review by the Federal Court of Appeal if the Court is satisfied that the agency:
(a) acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction;
(b) failed to observe a principle of natural justice, procedural fairness or other procedure that it was required by law to observe;
(c) erred in law in making a decision or an order, whether or not the error appears on the face of the record;
(d) based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it;
(e) acted, or failed to act, by reason of fraud or perjured evidence; or
(f) acted in any other way that was contrary to law.
[s. 96.1 of SIMA & s. 18.1(4) of the Federal Court Act]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 61
WTO Dispute Settlement: are the determinations consistent with the WTO Agreements?
Canada’s laws and regulations, and the practices and determinations of the CBSA and CITT can be challenged before a Dispute Settlement Panel and the appellate Body of the WTO.
If Canada loses the WTO case, the Minister of Finance may refer the matter back to the agency for a re-determination in accordance with the WTO ruling [s. 76.1(1) of SIMA]
It is most unlikely the Minister of Finance would decide otherwise
The agency may reopen its record as it sees fit [s. 76.1(1)(b) of SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 62
Particular Questions
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 63
Like Goods SIMA s.2(1): “like goods” are goods which are
identical or, if there are not identical goods, goods the uses and characteristics of which “closely resemble” the others.
Physical characteristics, for example: Appearance, design or fashion
Specifications, dimensions
Taste
Shape, colour or lustre
Chemical composition
Input materials
Manufacturing/production process and equipment
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 64
Like Product (Continued)
Market characteristics, for example: End use
Substitutability/competition
Complementarity
Marketing methods
Consumer preferences
Pricing
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 65
Administrative Changes after Positive Determinations
There are mechanisms for anti-dumping and countervailing duty rates to change administratively, up or down, during the five-year interval following determination and prior to the sunset reviews.
For instance it is possible to:
(i) obtain a normal value for a model not covered in the original determination; or
(ii) change the countervailing duty rate if the subsidizing program changes; or even
(iii) Persuade the CITT to conduct an interim review hearing and conclude that there is no longer any threat of injury (for all or some of the subject goods).
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 66
Expiry Reviews: Initiation
AD and CVD determinations expire after 5 years unless they are renewed by the CITT
The CITT will not renew without first issuing a notice of expiry, conducting a review hearing and deciding that there is a likelihood of resumption of injury.
[s.76.03 of SIMA]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 67
Expiry Reviews: Critical Elements
CITT decides whether to conduct an expiry review
CBSA determines whether it is likely that the exporters will resume or continue dumping or subsidizing the subject goods
[s.37.2(1) of SIMR]
CITT determines whether such resumed or continued dumping or subsidizing is likely to cause injury or retardation to the domestic industry[s.37.2(2) of SIMR]
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 68
History of Canadian CVD Actions
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 69
General Overview of Canada’s Countervail History
21 cases involving subsidy investigations under SIMA since its implementation on December 1, 1984
to date, 11 cases successful – subsidization and injury findings
compare with approximately 140 dumping investigations
Countries most often targeted under Canadian CVD actions:
Brazil India EU countries
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 70
General Overview of Canada’s Countervail History (continued)
Products most often targeted under Canadian CVD actions:
agricultural and food products (grain corn, boneless beef, pasta, refined sugar)
steel products
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 71
Recent CVD Cases in Canada
Re: the Subsidizing of Certain Stainless Steel Wire Originating in or Exported from India, Final CBSA Determination (June 30, 2004)
operation of duty drawback scheme
income tax exemption in export profits
duty relief on importation of certain capital goods
favourable interest rate on loan pertaining to goods for export
CITT issued final injury determination (July 30, 2004)
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 72
Recent CVD Cases in Canada: Imports from China
Canada’s first subsidy cases against China were initiated in 2004
Re: Outdoor Barbeques (AD and CVD) self-standing barbeques for outdoor use,
consisting of metal lid, base and frame, fuelled by either propane or natural gas, with primary cooking space between 200 and 550 sq.in. (approximately 1290 and 3549 sq.cm.), in assembled or knocked-down condition
February 19, 2004 – Fiesta Barbeques Limited’s complaint filed
April 13, 2004 – CBSA investigation initiated
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 73
Recent CVD Cases in Canada: Imports from China (continued)
Re: Outdoor Barbeques (continued) June 11, 2004 – CITT preliminary
injury determination issued
June 25, 2004 – CBSA’s dumping and subsidy investigation extended
August 27, 2004 – CBSA preliminary determination of subsidization issued, provisional duties imposed
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 74
Recent CVD Cases in Canada: Imports from China (continued)
Re: Outdoor Barbeques (continued) November 19, 2004 – CBSA terminated the CVD
investigation amount of subsidy (1.7%) insignificant (China considered
developing country under Article 27) no additional benefits for establishing operations in special
economic zones no exporter eligible for grants for export performance or
employment of workers no exporter received any loan guarantee no exporter qualified for income tax credits, refunds or
exemptions no exporter benefited from excess refund of duties or taxes no exporter received financial benefit when obtaining land
use rights
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 75
Recent CVD Cases in Canada: Imports from China (continued)
Re: Carbon Steel and Stainless Steel Fasteners (AD and CVD)
carbon steel and stainless steel fasteners, i.e., screws, nuts and bolts of carbon steel or stainless steel that are used to mechanically join two or more elements, excluding fasteners specifically designed for application in the automotive or aerospace industry
March 24, 2004 – Leland Industries Inc.’s complaint filed
April 28, 2004 – CBSA investigation initiated June 25, 2004 – Starpipe’s low alloy steel product
excluded, at request of Brenda Swick, on the basis that were not like goods
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 76
Recent CVD Cases in Canada: Imports from China (continued)
Re: Carbon Steel and Stainless Steel Fasteners (continued)
June 28, 2004 – CITT preliminary injury determination issued
July 9, 2004 – CBSA dumping and subsidy investigation extended
September 10, 2004 – CBSA preliminary determination of subsidization, provisional duties imposed
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 77
Recent CVD Cases in Canada: Imports from China (continued)
Programs and incentives under investigation by CBSA in Steel Fasteners case:
special economic zone incentives grants provided for export performance and
employing common workers preferential loans loan guarantees by the Government of China income tax credits, refunds and exemptions relief from duties and taxes on inputs reductions in land use fees purchase of goods from state-owned enterprises
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 78
Recent CVD Cases in Canada: Imports from China (continued)
Re: Laminate Flooring (AD and CVD) laminate flooring in thickness ranging
from 5.5 mm to 13 mm (other than laminate hardwood flooring where the hardwood component exceeds 2 mm in thickness)
August 13, 2004 – Uniboard Surfaces Inc.’s complaint filed
October 4, 2004 – CBSA investigation initiated
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 79
Recent CVD Cases in Canada: Imports from China (continued)
Re: Laminate Flooring (continued) December 3, 2004 – CITT preliminary
injury determination issued
January 4, 2005 – CBSA preliminary determination of dumping and/or subsidization expected
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 80
History of Canadian AD Actions
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 81
General Overview of Canada’s Anti-dumping History
Over 100 cases involving anti-dumping investigations under SIMA
Often overlap with countervail investigation
Many countries targeted including: United States
EU countries
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 82
Recent AD Cases in Canada: Imports from China
Re: Wood Venetian Blinds and Slats wood venetian blinds and slats October 8, 2003 – Stores de Bois de
Montréal Inc.’s complaint filed November 21, 2003 – CCRA
investigation initiated January 20, 2004 – CITT preliminary
injury determination issued February 19, 2004 – CBSA preliminary
determination of dumping issued
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 83
Recent AD Cases in Canada: Imports from China(continued)
Re: Wood Venetian Blinds and Slats (continued) May 17, 2004 – CBSA final
determination of dumping issued
June 18, 2004 – CITT negative injury and threat of injury finding with respect to venetian blinds
June 18, 2004 - CITT final injury determination issued with respect to wood slats
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 84
Recent AD Cases in Canada: Imports from China (continued)
Certain Fuel Tanks from the People’s Republic of China
new fuel tanks, gasoline or diesel, for passenger cars and light trucks, for the replacement market
October 13, 2003 – Spectra Premium Industries Inc.’s complaint filed
December 19, 2003 – CBSA investigation initiated
February 17, 2004 – CITT preliminary injury determination issued
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 85
Recent AD Cases in Canada: Imports from China (continued)
Certain Fuel Tanks from the People’s Republic of China (continued) March 16, 2004 – CBSA’s dumping
investigation extended
May 3, 2004 – CBSA preliminary determination of dumping issued
August 3, 2004 – CBSA final determination of dumping issued
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 86
Recent AD Cases in Canada: Imports from China (continued)
Certain Fuel Tanks from the People’s Republic of China (continued) August 31, 2004 – CITT negative
injury finding declining sales volume due to
general market contraction
complainant’s monopoly position and behaviour in the marketplace forced some customers to seek alternate sources of supply
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 87
Recent AD Cases in Canada: Imports from China (continued)
Certain Fuel Tanks from the People’s Republic of China (continued) August 31, 2004 - CITT negative
threat of injury finding subject goods not disruptive source of
supply in the Canadian marketplace insufficient inventory to significantly
expand sales in Canadian market other priority geographic markets import prices increasing
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 88
Recent AD Cases in Canada: Imports from China (continued)
Re: Outdoor Barbecues (AD and CVD) self-standing barbeques for outdoor use,
consisting of metal lid, base and frame, fuelled by either propane or natural gas, with primary cooking space between 200 and 550 sq.in. (approximately 1290 and 3549 sq.cm.), in assembled or knocked-down condition
August 27, 2004 – CBSA preliminary determination of dumping issued, provisional duties imposed
November 19, 2004 – CBSA terminated investigation
margin of dumping (1.6%) insignificant all provisional duties collected to be returned
to importers
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 89
Recent AD Cases in Canada: Imports from China (continued)
Re: Carbon Steel and Stainless Steel Fasteners (AD and CVD)
carbon steel and stainless steel fasteners, i.e., screws, nuts and bolts of carbon steel or stainless steel that are used to mechanically join two or more elements, excluding fasteners specifically designed for application in the automotive or aerospace industry
June 28, 2004 – CITT preliminary injury determination issued
September 10, 2004 - CBSA preliminary determination of dumping, provisional duties imposed
December 9, 2004 – CBSA final determination of dumping expected
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 90
Recent AD Cases in Canada: Imports from China(continued)
Re: Certain Laminate Flooring (AD and CVD)
laminate flooring in thickness ranging from 5.5 mm to 13 mm (other than laminate hardwood flooring where the hardwood component exceeds 2 mm in thickness)
December 3, 2004 – CITT preliminary determination of injury
January 4, 2005 – CBSA preliminary determination of dumping expected
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 91
General Trade Law Questions
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 92
Safeguard Mechanism for Goods from China
China - specific safeguard mechanism adopted by Canada on September 30, 2002
China’s WTO Accession Protocol (December 11, 2001)
Canadian International Trade Tribunal Act Customs Tariff Export and Import Permits Act
Temporary – until December 11, 2013 Need not demonstrate dumping or subsidization Types of inquiries:
Market disruption inquiry Extension inquiry Trade diversion inquiry
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 93
China Safeguards: Inquiries
Market disruption inquiry Initiated by either Canadian government or
a domestic producer of like or directly competitive goods
CITT considers whether Chinese goods are being imported into Canada in such increased quantities or under such conditions as to cause or threaten “market disruption”
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 94
China Safeguards: Inquiries (Continued)
Market disruption inquiry (continued) Rapid increase in imports
“Significant cause” or threat of material injury
Market disruption extension inquiry Prior to expiry of a market disruption
safeguard measure, a domestic producer may seek extension
Are safeguard measures still necessary to prevent or remedy market disruption?
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 95
China Safeguards: Inquiries (Continued)
Trade diversion inquiry Initiated by either Canadian government or a domestic
producer of like or directly competitive goods CITT considers whether any “actions” affecting imports
of Chinese goods into the market of another WTO country are causing or threatening to cause a significant diversion of trade into Canada’s domestic market
“Action” includes actions taken by China to prevent or remedy market disruption in
a WTO Member other than Canada, or by a WTO Member other than Canada to withdraw
concessions under the WTO Agreement or otherwise limit imports to prevent or remedy market disruption, in that Member, caused or threatened by the importation of goods from China
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 96
China Safeguards: Remedies
CITT report issued to Finance Canada
Government of Canada may:
Impose fixed or variable rate surtax
Impose quotas
Imposition is not automatic
Period specified by the Minister of Finance
There have so far been no Canadian safeguard cases initiated against China
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 97
China Safeguards: Remedies (continued)
U.S. experience – USITC recommendations:
pedestal actuators
wire hangers
brick drums, rotors
iron waterworks fittings
Despite USITC ITC recommendations for remedies, no U.S. action to date
U.S. textile safeguards
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 98
Example 1: Aircraft Dispute
Canada-Brazil Aircraft Dispute 1998 - Canada requests that a WTO Panel examine
Brazil's PROEX program. PROEX reduces the interest rate on financing for Brazilian aircraft by 3.8 percentage points. Canada argues that PROEX is an export subsidy. In response, Brazil challenges numerous Canadian subsidy programs, alleging them to be subsidies, too.
1999 – Panel report findings:
• PROEX is a prohibited export subsidy
• Two Canadian subsidy programs do not comply with SCM subsidy provisions: Canada Account debt financing for regional aircraft, and Technology Partnerships Canada (TPC) assistance to regional aircraft industry.
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 99
Example 1: Aircraft Dispute
1999 – WTO Appellate Body:
• Rejects Brazil's appeal. Confirms that Brazil must withdraw PROEX export subsidies within 90 days.
• Confirms non-compliance of Technology Partnerships Canada (TPC) and of Canada Account with SCM provisions
2000 – WTO compliance panel, confirmed by Appellate Body:
• Brazil has not brought its Proex aircraft subsidy program into compliance with its WTO obligations
• Canada has brought Technologies Partnerships Canada (TPC) into full compliance with SCM
2000 - WTO Panel rules that Canada can apply $2.1 billion in countermeasures against Brazil
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 100
Example 1: Aircraft Dispute
2001- Canada challenges compliance of Brazil’s revised Proex
2001 – Brazil challenges Canada’s matching of Brazil’s preferential financing of a sale to Air Wisconsin
2001 – WTO makes fifth ruling against Proex 2002 - WTO rules against Canada’s financial of sale to
Air Wisconsin 2002 – DSB adopts Panel report findings and
recommends that Canada withdraw the subsidies found to be incompatible with Article 3.1(a) of SCM Agreement
December 23, 2002 – WTO authorizes $385 million in Brazilian countermeasures against Canada
Canada and Brazil have been in negotiations since then to avoid the countermeasures. See: www.dfait-maeci.gc.ca/tna-nac/Aircraft-en.asp
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 101
Example 1: Aircraft Dispute
Legal Issues: Are Canada Account and Technologies
Partnerships Canada programs prohibited export subsidies under Articles 1 and 3.1(a) of the SCM Agreement?
• Are CA and TCP programs issuing prohibited export credits, financing, loan guarantees or interest rate support?
• Are CA and TCP ‘as such’, ‘as applied’, or ‘in respect of specific transactions’ contingent on export and thus prohibited export subsidies?
• Do CA and TCP fall within (k) the safe haven clause of the OECD Arrangement?
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 102
Example 1: Aircraft Dispute
Compliance Measures:
Measures taken by Canada to restructure TCP to comply with SCM obligations:
• (i) TPC objectives adjusted to focus on enhancing the technological capability of Canadian industry, rather than commercialization
• (ii) Eligible activities redefined based on WTO definitions for industrial research and pre-competitive development
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 103
Example 1: Aircraft Dispute
• (iii) Assessment criteria re-oriented to focus on contribution a project makes to improving technological competitiveness of a firm rather than the commercial viability of a specific product
• (iv) Transparency enhanced: all TPC contracts explicitly document government's rationale for the investment and all related conditions
• (v) Risk and reward sharing restructured: TPC shares both the risks and rewards of projects, with rewards to government consisting of both financial returns and economic benefits to Canada
• Repayments no longer based on royalties tied to product sales but take different forms depending on project
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 104
Example 2: Softwood Lumber
WTO Cases (Simon Potter and Brenda Swick involved in all of these)
Byrd Amendment (“Continued Dumping and Subsidy Offset Act of 2000”) authorizing distribution of AD/CVD duties to US complainants: Canada (and others) won on January 15, 2004
U.S. treatment of Canadian log export restraints as a subsidy to lumber: Canada won on June 29, 2001
Section 129(c)(1) of the U.S. Uruguay Round Agreements Act, which prohibits refunds of duty collected under determinations found to be WTO-illegal: Canada’s case was found to be premature on July 15, 2002
DOC’s preliminary determination of subsidization: Canada won on the issues of “benefit” and “pass-through” on September 27, 2002
DOC’s preliminary determination of dumping: Canada eventually dropped this case
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 105
Example 2: Softwood Lumber (continued)
Final determination of dumping by DOC: Canada won on August 11, 2004
Final determination of subsidization by DOC: Canada won, on January 19, 2004, on the issue of whether the DOC could use U.S. stumpage rates to assess whether Canadian provincial stumpage rates reflect undistorted market rates (as well as on other issues)
Final determination of injury by ITC: Canada won, on March 22, 2004; the ITC’s determination could not have been rendered by an objective and unbiased authority. ITC now seeks to implement this decision by reopening its record, even though a NAFTA panel has twice refused to allow this.
Availability of administrative reviews for individual exporters seeking their own CVD rates: consultations ongoing since June 8, 2004
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 106
Example 2: Softwood Lumber (continued)
NAFTA judicial review cases (Simon Potter and Brenda Swick involved in all of these):
DOC’s final determination of subsidization: Panel remanded and DOC has reduced the CVD rate substantially
DOC’s final determination of dumping: Panel remanded and DOC has reduced the AD rate substantially
ITC’s final determination of injury: Panel has remanded the decision, saying the ITC record discloses on evidence of threat of injury
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 107
McCarthy Tétrault LLPLaw Firm
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 108
The Firm
Full-service firm with more than 800 lawyers in Canada, the United States, and England
Only Canadian law firm in the Chambers Global: The World's Leading Lawyers, "Top 10 Firms in North America"
Mandarin and Cantonese speaking capacity
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 109
Our Experience with China
Re: Automotive Replacement Windshields [2002] PI-2001-03 (Riyaz Dattu represented an importer in the early stages of this case)
Re: Outdoor Barbeques [Pending] PI-2004-01 (Riyaz Dattu represents importers/retailers of Chinese goods)
Re: Fasteners [Pending] PI-2004-02 (Riyaz Dattu represents importers/retailers of Chinese goods) (Brenda Swick represented Starpipe through to its exclusion as a named exporter)
Re: Venetian Blinds [Pending] (Brenda Swick represents Yeo Long)
Seminars to delegations from various Chinese governments, and to MOFTEC, and to various trade associations in China
McCarthy Tétrault LLPInternational Trade and Investment Law Group Page 110
Our Experience with China (continued)
Memos and strategic analysis provided to the Bureau of Fair Trade regarding:
Canada’s treatment of China as a non-market economy in anti-dumping investigations
Canada’s implementation of China-specific safeguards
addressing subsidy allegations against China in CBSA’s fasteners investigation
The last case in which McCarthy Tétrault or any of its lawyers took a position adverse to any Chinese interest:
In 2001 McCarthy Tétrault’s client Stelco supported an anti-dumping complaint by Dofasco against several countries, including China.