Boeing Targeting Bombardier in AD/CVD Investigation Raises Global Systemic Concerns

For the first time, a global aircraft producer has invoked domestic trade remedy laws against imports from a competitor.  On 27 April 2017, the Boeing Company (Boeing) filed a petition with the US Department of Commerce (USDOC) and US International Trade Commission (USITC) seeking the imposition of anti-dumping and countervailing duties on imports of 100-150 seat large civil aircraft (LCAs) from Canada.  The petition explicitly targets Bombardier’s new C Series aircraft. It alleges that dumped and subsidized imports of C Series aircraft compete in the US market with Boeing’s 737-700 and 737 Max 7 aircraft and threaten material injury to the US production of those aircraft. 

The petition further alleges that “Bombardier has received billions of dollars of countervailable subsidies with respect to the manufacture, production, or export of Aircraft” and identifies numerous subsidy programs, including equity infusions, launch aid, export development financing, customer financing, the Technology Partnerships Canada Program, the Technology Demonstration Program, provision of production facilities and land at Mirabel, tax credits provided by the city of Mirabel, and R&D and financing support.  The subsidies are alleged to be provided by the governments of Canada and Quebec, lnvestissement Québec, Caisse de dépôt et placement du Québec, and the city of Mirabel.

Separately, the petition alleges that:

“Bombardier is dumping the C Series at extreme levels in the U.S. market. At USD 19.6 million per aircraft, C Series pricing in the Delta sale is well below a constructed value of USD 35.3 million per aircraft. It is also significantly lower than Bombardier’s contemporaneous below-cost sale in its home market, to Air Canada, which was reportedly at USD 30 million per aircraft. Comparing the Delta price to constructed value yields an estimated dumping margin of at least 80.50% ad valorem”.

If dumping, subsidization, and injury are ultimately found to exist by the USDOC and the ITC, anti-dumping and countervailing duties will be imposed.  Based on the allegations in the petition, the amounts of such duties could be substantial.

Until the filing of this petition, trade disputes over aircraft subsidies have been fought in the World Trade Organization (WTO) between Canada and Brazil (1996-2003) and the United States and European Union (2004-current).  Both Boeing and Airbus have been found by the WTO to have benefitted from subsidies in the production of their LCAs, and their disputes in the WTO continue.  The primary reason why Boeing and Airbus restricted their disputes to the WTO, and did not resort to domestic AD/CVD investigations, is likely because each company occupies a large domestic market, and reciprocal AD/CVD investigations would have inevitably ensued, hurting both companies.  This is not the case with Canada, a small market compared to the United States.  Presumably, Boeing has concluded that the upside of targeting Bombardier exceeds any downside in the Canadian market.

Boeing’s action raises vital global systemic issues.  Given the expense and risk associated with aircraft production, government support has long been necessary in the development of new aircraft and technologies, whether in the United States, the European Union, Canada, or elsewhere. The entire world benefits from the development of these new aircraft, and therefore from the widespread government subsidization that facilitates their development and production. Such benefits include, for example, lower costs, increased flight frequencies, better safety, reduced environmental emissions, increased comfort, and innovations — such as the capability to land Bombardier’s low-noise C Series on a small runway like that at the Toronto Island airport.  Global subsidization, combined with the size and importance of the US and EU markets to aircraft sales, puts subsidized Boeing and Airbus aircraft in an imbalanced position of strength against their smaller competitors when it comes to invoking domestic AD/CVD protection. 

Tereposky & DeRose is monitoring this trade action from the perspectives of global trade rules and systemic issues.  Please feel free to contact us if you have any questions relating to the matters raised in this article or the trade action more generally.

Contact:

 Greg Tereposky

613.903.7015, ext. 101

gtereposky@tradeisds.com

 Vincent DeRose

613.903.7015, ext. 102

vderose@tradeisds.com

 

 

WTO Panel Report Released on China Anti-Dumping Measures on Imports of Cellulose from Canada

On April 25, 2017, the World Trade Organization (WTO) Report of the Panel in China – Anti-Dumping Measures on Imports of Cellulose Pulp from Canada was released. The dispute concerned the anti-dumping measure imposed by China on imports of cellulose pulp used in paper and textiles originating from Canada. Following an investigation at the request of Chinese cellulose pulp producers, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) concluded that imports of cellulose pulp from Canada (as well as from the United States and Brazil) had been dumped and this had caused material injury to the domestic industry of China. This resulted in the imposition of anti-dumping duties at the rate of 13% for imports from cooperating Canadian producers and at the rate of 23.7% for imports from all other Canadian producers.

Canada challenged the duties in the WTO, claiming that they were inconsistent with China’s obligations under Articles 3.1, 3.2, 3.4, and 3.5 of the Anti-Dumping Agreement, and, as a consequence, also inconsistent with Article 1 of the Anti-Dumping Agreement and Article VI of the General Agreement on Tariffs and Trade 1994 (GATT 1994).

The Panel concluded that Canada had established that China acted inconsistently with:

1.      Articles 3.1 and 3.2 of the Anti-Dumping Agreement with respect to MOFCOM’s consideration of price effects. According to the Panel, MOFCOM failed to adequately explain both the role of parallel price trends and the fact that dumped import prices were higher than the prices of the domestic like product. Canada had based its allegations of violations of Articles 3.1 and 3.2 on China’s finding that the subject cellulose imports depressed its domestic pricing. Canada asserted that China had failed to establish how dumped imports established pricing depression from midway through 2011 to the end of 2012. Canada alleged that China had incorrectly calculated its price trend analysis by disregarding the fact that the imports from Canada were actually sold at higher prices than China’s domestic industry had sold like products in the domestic market.  In response, China submitted that those pricing trends were in the record, and, according to WTO law, the Ministry need not find price undercutting to find price depression.
The Panel stated that the fact of parallel price trends provides little support, if any, for MOFCOM’s conclusion that dumped imports had the effect of domestic price depression.
A for the price undercutting issue, the Panel held that MOFCOM had not adequately justified its conclusion that dumped imports had depressed domestic prices when those imports were sold at higher prices, particularly toward the end of the anti-dumping period of investigation.

 2.      Articles 3.1 and 3.5 of the Anti-Dumping Agreement with respect to MOFCOM’s demonstration of a causal relationship between the dumped imports and injury.  Canada had claimed that China violated Articles 3.1 and 3.5 of the Anti-Dumping Agreement when it found a causal relationship between the dumped cellulose imports and injury to China’s domestic industry. According to Canada, China used flawed analyses of volume and price effects in reaching that conclusion. The Panel accepted this submission, finding that MOFCOM had failed to demonstrate how the increased volume of dumped imports over the period of investigation was linked to the alleged injury to the domestic industry, particularly given increasing market demand during this time. 

 3.      Articles 3.1 and 3.5 in connection with MOFCOM’s examination of the effects of changes in cotton and VSF prices; domestic industry overexpansion, overproduction and inventory build-up; and the impact of non-dumped imports as allegedly known factors other than the dumped imports causing injury to the domestic industry.  The Panel held that MOFCOM had failed to ensure that injuries caused by these factors were not attributed to the dumped imports.

 As a consequence of the inconsistencies outlined above, Canada was successful in establishing that China had acted inconsistently with Article 1 of the Anti-Dumping Agreement and Article VI of the GATT 1994. China has until June 23, 2017 to appeal the Panel’s findings.

Tereposky & DeRose regularly represents and advises on all manner of anti-dumping matters, both domestically and abroad. Please contact us if you have any questions regarding the content of this article, or in relation to anti-dumping measures more generally.

Contact:

 Jennifer Radford

613.903.7015, ext. 103

jradford@tradeisds.com

Dan Hohnstein

613.903.7015, ext. 104

dhohnstein@tradeisds.com

 

Canada–US Trade Tensions Intensify with Imposition of Lumber Tariffs

US Imposition of Preliminary Countervailing Duties

On April 24th, 2017, the United States Department of Commerce (USDOC) announced the imposition of preliminary countervailing duties ranging from 3.02% to 24.12% on imports of softwood lumber from Canada.

These are the first duties to result from the anti-dumping and countervailing duty investigations that were initiated on November 25th, 2016 by a petition filed on behalf of a US industry coalition, i.e., the “Committee Overseeing Action for Lumber International Trade Investigations or Negotiations”. The USDOC is scheduled to issue a preliminary determination in the other, separate anti-dumping investigation on June 23rd, 2017. This determination is likely to result in the imposition of additional duties on softwood lumber imports from Canada. The final anti-dumping and countervailing duty determinations will be issued on the same date, which is currently scheduled for no later than September 6th, 2017. The related investigation by the United States International Trade Commission (ITC) into whether Canadian softwood lumber is causing or threatening injury to the US industry is expected to be completed by the end of the year.

The implications of these investigations go beyond the adverse impact on the Canadian lumber trade. The way in which the USDOC conducts the two investigations will reflect on the broader question of how Canada and the United States will address trade issues going forward under the Trump administration: diplomacy and mutually beneficial cooperation or increased litigation? Will the USDOC’s approach be balanced? Or will it be aggressive? Based on this first indication, it may be the latter. Canada-US trade relations could be in for a rough ride in the months and years ahead.

In its preliminary determination, the USDOC found that the five Canadian exporters that it investigated have received countervailable subsidies and assessed the following rates of duty: West Fraser Mills Ltd. at 24.12%; Canfor Corporation at 20.26%; Tolko Marketing and Sales Ltd. at 19.50%; Resolute FP Canada Inc. at 12.82%; and J.D. Irving, Limited at 3.02%.  All other Canadian softwood lumber exporters to the United States will be required to pay a 19.88% duty, which is the weighted average of the foregoing five duty rates.

The impact of the preliminary countervailing duties and any future duties further to the final determinations will cause a substantial adverse impact on Canadian softwood lumber exports, US purchasers of that lumber, the US housing market, and, ultimately, the US consumer.  In its announcement of the preliminary duties, the USDOC estimated that imports of softwood lumber from Canada were valued at $5.66 billion in 2016.

 Preliminary Finding of Critical Circumstances

This adverse impact will be compounded by a separate preliminary determination by the USDOC of “critical circumstances” with respect to both the anti-dumping and countervailing duty investigations. Critical circumstances were found against one of the five companies subject to the investigation, J.D. Irving, and “all other” Canadian softwood lumber exporters. What this means is that the duties can be applied retroactively to imports from these companies, up to 90 days prior to the publication of the affirmative preliminary determination that countervailable subsidies have been provided at above de minimis rates. This would mean that duties can be applied to imports that have entered the United States since the end of January 2017.

The USDOC found that the statutory requirements for critical circumstances had been met — namely, that the alleged countervailable subsidy was inconsistent with the WTO Agreement on Subsidies and Countervailing Measures. In this respect, it found that there was a reasonable indication that the Export Guarantee Program administered by Export Development Canada was a prohibited export subsidy, that there was a history of dumping and material injury by reason of dumped imports (i.e., it took note of its  previously issued anti-dumping order on softwood lumber from Canada and the associated ITC injury determinations), and that there had been massive imports of the subject merchandise over a relatively short period of time. With respect to the latter point, it found that Canadian softwood lumber exporters knew a proceeding was likely because of the expiry of the Softwood Lumber Agreement and compared import volumes before and after the expiry date.

Navigating the Softwood Lumber Dispute Going Forward

 The immediate future will see the Government of Canada, the provincial governments, and Canadian producers and exporters of softwood lumber engaging in the administrative proceedings leading to the final anti-dumping and countervailing duty determinations and the ITC injury proceeding.  Based on the long history of Canada-US softwood lumber disputes, Canada can be expected to initiate challenges in the World Trade Organization (WTO) soon after the USDOC issues its final determinations in September. If the ITC also makes an affirmative injury determination, a similar challenge of that determination is also expected. Further, the governments and exporters can also be expected to initiate parallel challenges under the binational panel review process in Chapter 19 of the North American Free Trade Agreement (NAFTA). Finally, throughout the entire process, it is expected that Canada will be attempting to secure a mutually advantageous negotiated resolution of the dispute.

Tereposky & DeRose is monitoring all issues related to the softwood lumber dispute.  Please feel free to contact us if you have any questions relating to the matters raised in this article or the softwood lumber dispute more generally.

Contact:

Jennifer Radford

613.903.7015, ext. 103

jradford@tradeisds.com

 

Dan Hohnstein

613.903.7015, ext. 104

dhohnstein@tradeisds.com

 

The Launch of Tereposky & DeRose LLP

On April 1, 2017, Tereposky & DeRose LLP opened for business.  Based in Canada’s national capital, our new boutique firm offers a team of lawyers recognized globally for the depth of their expertise and experience in international trade and investment law, and procurement law.  Founding partners Greg Tereposky, Vince DeRose, and Jennifer Radford, along with senior associate Daniel Hohnstein, look forward to achieving continued success for clients in Canada and abroad under the Tereposky & DeRose banner.

Current Status of the Implementation of the CETA

The question of when the Canada-EU Comprehensive Economic and Trade Agreement (CETA) is expected to enter into force is an increasingly important one among Canadian and EU stakeholders.  The implementation processes are well underway, and there is little question that the CETA will provisionally enter into force at some point in the months ahead. There is some uncertainty, however, about the particular point in time when this will happen.

For now, the short answer is at least five weeks, and is dependant on when the proposed regulations and regulatory amendments required for CETA implementation are pre-published in Part I of the Canada Gazette for a period of public review and comment.  For a detailed explanation of the process, please see the following article prepared by our senior associate,  Dan Hohnstein: Bill C-30 (the CETA Implementation Act) and the Parliamentary Process.

Bill C-30 (the CETA Implementation Act) and the Parliamentary Process

In Canada, Bill C-30 is the proposed legislation to implement Canada’s commitments under the CETA at the federal level, which is currently before Parliament. The legislative process in Canada involves three ‘readings’ of the bill and an intensive committee analysis in both parliamentary houses, the House of Commons and the Senate. As part of this process, two parliamentary committees from each house, each undertake a detailed examination of the draft legislation and consider the evidence received from stakeholders.

On Tuesday, February 14, 2017, the Bill was passed in the House of Commons and advanced to the Senate, with its Second Reading completed on Tuesday, March 7th. It was subsequently referred to the Senate Committee on Foreign Affairs and International Trade. The Committee is expected to begin its analysis upon returning to session in late March, 2017. Although the Bill proceeded through the House of Commons on an expedited basis with little substantive debate and very few amendments, there are Senators who have called upon the Senate to undertake a more thorough review. The work of the Committee may take two weeks or more, after which the Bill will return to the Senate for its Third Reading. As substantive debate and proposed amendments are likely to occur, it is foreseeable that this step will require at least another week.

After Third Reading, Bill C-30 will either receive Royal Assent, at which point it will become law in Canada, or it will be referred back to the House of Commons for further examination and debate.

The Federal Regulatory Process

Once the Bill becomes law, the implementation process will continue with changes to Canada’s Federal regulatory regimes. In order to incorporate the rights and commitments established under the CETA, a host of new regulations will be created under the Customs Act and the Customs Tariff (e.g., the CETA Rules of Origin Regulations, the CETA Verification of Origin Regulations, the CETA Tariff Preference Regulations, et cetera), the Patent Act, and other statutes, while a number of existing regulations will also need to be amended.

Ordinarily, proposed regulations and regulatory amendments are pre-published in Part I of the Canada Gazette for a period of at least 30 days before they are approved. This pre-publication and review period allows the public an opportunity to review the proposed regulatory changes and submit comments. In most cases, this is merely a general policy requirement, and it can be waived if the Special Committee of Council (a committee of Cabinet) grants an exemption.

It should also be noted that official guidance provided by the Government of Canada regarding the Federal regulatory process with respect to the pre-publication period for “regulations covered under international trade agreements” provides as follows: “When draft regulations are pre-published, interested persons are allowed a period of time to express their views. The period is usually 30 days in the case of regulations pre-published under the Cabinet policy. In other cases, the length of pre-publication may be specified in the enabling Act. The pre-publication period may also be determined by international agreements, such as the World Trade Organization agreements and the North American Free Trade Agreement. In general, it is both prudent and a requirement of the Regulatory Policy that regulations covered under international trade agreements be pre-published for a minimum of 75 days” (underline emphasis added).

Arguably, all regulatory changes for the purposes of the CETA are covered under Article 27.1 (Transparency – Publication), which provides: first, that “[e]ach Party shall ensure that its laws, regulations, procedures and administrative rulings of general application respecting any matter covered by this Agreement are promptly published or made available in such a manner as to enable interested persons and the other Party to become acquainted with them”; and, second, that “[t]o the extent possible, each Party shall: (a) publish in advance any such measure that it proposes to adopt; and (b) provide interested persons and the other Party a reasonable opportunity to comment on such proposed measures” (underline emphasis added).

Reading Article 27.1 of the CETA together with the Federal Regulatory Policy requirement for pre-publication of “regulations covered under international trade agreements”, it would be reasonable to expect that the proposed regulations and regulatory amendments will be pre-published for a period of at least 75 days. It should be noted, however, that this policy requirement is also subject to an exemption by the Special Committee.

It is not known at this time which approach the Government of Canada will take with respect to the pre-publication of regulations necessary to implement the CETA; it may exempt this part of the process altogether in order to expedite implementation, or it could allow a period of 75 days, 30 days, or any other period that it deems appropriate under the circumstances.

Provisional Implementation

Once the new regulations and regulatory amendments have been approved, Canada will be in a position to exchange notices with the European Union under Article 30.7 (Final provisions – Entry into force and provisional application). In principle, Canada and the European Union could exchange notices for the purposes of sub-paragraph 30.7(3)(a), which provides as follows: “The Parties may provisionally apply this Agreement from the first day of the month following the date on which the Parties have notified each other that their respective internal requirements and procedures necessary for the provisional application of this Agreement have been completed or on such other date as the Parties may agree” (underline emphasis added).

As the European Union will be entering into provisional application of the CETA pending the implementation required in all of its Member States , it is reasonable to expect that Canada will follow the same approach, considering the implementation required in each of the ten provinces and three territories.

Implementation in the Provinces and Territories of Canada

The provincial and territorial legislatures are currently in the process of implementing the CETA provisions that fall within their exclusive jurisdictions pursuant to the Constitution.

In particular, provincial and territorial statutes, regulations, directives, and municipal by-laws relating to government procurement will need to be amended, as applicable, in order to ensure consistency with Canada’s commitments under CETA Chapter Nineteen (Government Procurement) and the associated annexes and schedules. The CETA provides unprecedented market access commitments to EU firms bidding on contracts owned by municipal governments and provincial government entities for the supply of construction services, goods, and other services, including a “national treatment” obligation and minimum standards for public procurement processes. These commitments apply to government procurements for which the value equals or exceeds the applicable monetary thresholds (e.g., for construction services procured at all levels of government, the threshold is $5 million Special Drawing Rights (SDR), which is approximately CAD$9.05 million at the March 31, 2017 exchange rate.

Conclusion

As indicated above, there are a number of variables that complicate an estimate of the date on which the CETA will provisionally enter into force. One of these variables is how long it will take the Canadian Senate to complete its work on Bill C-30. Another is the duration of the pre-publication and public comment period that may be provided prior to the approval of the proposed regulations and regulatory amendments necessary to implement the CETA.

If Royal Assent is granted to Bill C-30 at some point in April, and if a pre-publication and public comment period of at least 30 days is observed, then the exchange of notices for the purpose of triggering the provisional application of the CETA could potentially happen before the end of May 2017. If so, then the CETA could enter into force on a provisional basis by June 1st. However, this is a speculative estimate that contemplates relatively short timeframes. A longer timeline is just as plausible.

For more information on Canada’s federal regulatory policy, please see: Peter Bernhardt (former Senior Counsel with the Regulations Section of Justice Canada) & Paul Salembier (former Legal Counsel with the Standing Joint Committee for the Scrutiny of Regulations), “Understanding the Regulation Making Process”, presentation in a Library of Parliament Seminar (October 26, 2001), available online at: http://www.revparl.ca/english/issue.asp?param=82&art=245; and Privy Council Office, “Guide to Making Federal Acts and Regulations: Part 3 – Making Regulations” (2009), available online at http://www.pco-bcp.gc.ca/index.asp?lang=eng&page=information&sub=publications&doc=legislation/part3-eng.htm and http://www.pco.gc.ca/docs/information/publications/legislation/pdf-eng.pdf.