CANADA INITIATES ANTI-DUMPING INVESTIGATION OF CORROSION-RESISTANT STEEL SHEET

On July 26, 2018, the Canada Border Services Agency (CBSA) initiated an investigation regarding the alleged dumping of certain corrosion-resistant steel sheet from China, Chinese Taipei, India and South Korea. The investigation follows a complaint filed by ArcelotMittal Dofasco G.P. and supported by Stelco Inc.

The investigation covers corrosion-resistant flat-rolled steel sheet products of carbon steel, including products alloyed with the following elements:

  • Boron (B) not more than 0.01%,
  • Niobium (Nb) not more than 0.100%,
  • Titanium (Ti) not more than 0.08%, or
  • Vanadium (V) not more than 0.300%

in coils or cut lengths, in thicknesses up to 0.168 in. (4.267 mm) and widths up to 72 inch (1,828.8 mm) with all dimensions being plus or minus allowable tolerances contained in the applicable standards, chemically passivated.

More information regarding the goods covered by this investigation can be found in the CBSA Notice of Initiation of Investigation.

The CBSA will issue its preliminary determination regarding the alleged dumping on October 24, 2018.

Tereposky & DeRose regularly provides advice on Canadian anti-dumping and countervailing duty matters. Should you have any questions regarding this matter or anti-dumping and countervailing duty issues more generally, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Canada Initiates Anti-dumping Investigation of CWS Pipe from Pakistan, the Philippines, Turkey, and Vietnam

On June 20, 2018, the Canada Border Services Agency (CBSA) initiated investigations regarding the alleged dumping of certain carbon steel welded pipe from Pakistan, the Philippines, Turkey and Vietnam. The investigation follows a complaint filed by Novamerican Steel Inc.

The goods in question are usually classified under the following tariff classification numbers: 7306.30.00.10; 7306.30.00.20; and 7306.30.00.30.

The CBSA will issue its preliminary determination regarding the alleged dumping on October 18, 2018.

Tereposky & DeRose regularly provides advice on Canadian anti-dumping and countervailing duty matters. Should you have any questions regarding this matter or anti-dumping and countervailing duty issues more generally, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Analyzing the Opportunities for Trade in Apparel Products under the CETA

In brief:

  • The CETA eliminates customs tariffs of 17-18 percent on EU clothing and apparel products imported into Canada, provided that the applicable rules of origin are satisfied. This preferential tariff treatment equates to a significant competitive advantage, lowering the costs and increasing the profitability of EU apparel goods sold in the Canadian market.
  • Year-to-date trade statistics indicate that imports of EU apparel products into Canada have increased since the CETA entered into force, while imports from other countries appear to have slightly declined overall.
  • The CETA’s rules of origin for apparel products are generally more liberal than the rules of origin in Canada’s other regional trade agreements, including the NAFTA. This may provide EU apparel producers with a competitive edge in the Canadian market over their international competitors.
  • The highly liberal rules of origin applicable under the CETA’s “origin quotas” allow EU manufacturers to use “non-originating” fabric woven in third countries to produce “originating” apparel products eligible for preferential tariff treatment under the CETA.

                                                                                                                                                                         

Last month, Italy’s minister of agriculture made headlines when he claimed that Italy’s government did not intend to ratify the Comprehensive Economic and Trade Agreement (CETA) concluded between Canada and the European Union (see Italy’s Decision on CETA Ratification – What Does It Really Mean?). Leaving aside the discussion of whether or to what extent such a decision would actually affect the provisions of the CETA that are exclusively within EU competence and have been in force since September last year, it is interesting to note that Italy is Europe’s third-largest exporter to Canada, after Germany and the United Kingdom. In 2017, goods imported into Canada from Italy totalled approximately CA $8.15 billion. These goods included motor vehicles ($446.8 million), wine ($441 million), clothing and apparel products ($321.7 million), medicaments in measured doses or retail packages ($263.9 million), leather handbags ($116.8 million), olive oil ($108.7 million), and a range of other products. In comparison, Canada exported about $2.29 billion in goods to Italy during the same year.

Since entering into force, the CETA has provided EU exporters — including producers of agricultural and manufactured goods in Italy — with competitive advantages and new market access opportunities in Canada. For Italian (and other EU) producers of apparel products, for example, the CETA’s liberal rules of origin and “origin quotas” greatly enhance market access and provide a significant advantage over competitors from other countries, including those based in Canada’s other trading partners.

The CETA Advantages for EU Apparel Products

EU apparel products, particularly from Italy, have long been an important part of the Canadian market. Despite high customs tariffs of 17 to 18 percent, the value of EU apparel products imported into Canada was significant before the CETA entered into force. In 2016, for example, EU imports totalled $592 million, of which imports from Italy accounted for $295 million (almost 50 percent). In that year, the total Canadian market for imported apparel products was $11.6 billion, and EU market share was about 5.1 percent.

The high customs tariffs that had historically limited the competitiveness and, thus, the market share of EU apparel products were eliminated when the CETA entered into force. Thus, products previously subject to customs duties at rates of 17 to 18 percent may now be imported on a duty-free basis, provided that the applicable “rules of origin” set forth in the CETA’s Origin Protocol are satisfied. This preferential tariff treatment equates to a new competitive advantage of 17 to 18 percent in the Canadian market, allowing EU producers and exporters to compete at lower landed costs and/or greater profit margins.

Considering the total value of the Canadian market for imported apparel products, one would expect this change in the competitive landscape to open up market access opportunities, allowing EU exporters to capture greater shares in the Canadian market. Although it is too early to draw any conclusions, there are indications that this may already be happening. A year-to-date comparison of the trade statistics for the first five months in 2018 (under the full force of the CETA) and for the same period in 2017 (prior to the CETA) indicates that imports of EU apparel products into Canada have increased an average of 20.6 percent, while imports from other countries have generally decreased, shrinking by 0.9 percent overall (see Industry Canada, “Trade Data Online”, available at http://www.ic.gc.ca/eic/site/tdo-dcd.nsf/eng/Home).

Liberal Rules of Origin = Competitive Advantages

In assessing how the CETA has changed the competitive landscape in Canada for imported apparel products, an important consideration is that the CETA rules of origin are generally more liberal than the rules of origin under Canada’s other regional trade agreements. A rule of origin is said to be more liberal when it allows producers to use a higher proportion of “non-originating” materials (i.e., materials sourced from third countries outside the region covered by the agreement) in the production of “originating” goods eligible for preferential tariff treatment. Liberal rules of origin provide greater flexibility to producers, allowing them to take advantage of efficient international supply chains, which helps to lower their costs of production and increase their competitiveness.

A brief comparison of the product-specific rules of origin applicable to men’s suits (tariff heading 62.03) under the CETA and the North American Free Trade Agreement (NAFTA) provides a practical example. The rate of customs duty that ordinarily applies to these goods is 18 percent for suits of wool and 17 percent for suits of cotton and other fibres. Under both the CETA and the NAFTA, these goods may be imported into Canada on a duty-free basis, provided that the applicable rules of origin are satisfied.

The NAFTA rules of origin are relatively strict, generally requiring suits under tariff heading 62.03 to be made using fabric woven from yarn produced in one of the NAFTA countries. In comparison, the CETA rules of origin allow non-originating yarn from a third country to be used in weaving the fabric that is used to make up the garments.

Further, where a suit is made from printed fabric, the CETA rules of origin allow manufacturers to use unprinted, non-originating fabric woven in a third country, provided that (i) the printing operations, together with at least two preparatory or finishing operations (e.g., bleaching, heat setting, raising, calendering, shrink resistance processing, impregnating, mending, etc.), are done on the fabric in a CETA country, and (ii) the value of the unprinted, non-originating fabric does not exceed 47.5 percent of the transaction value or ex-works price of the finished suit.

Under the CETA, therefore, manufacturers of suits have broader access to the basic production materials, i.e., yarns and/or unprinted fabrics of wool, cotton, or other fibres. This allows them to leverage the most efficient sources of supply available in international markets. In principle, this may provide EU producers with a competitive advantage over their U.S. competitors in the Canadian market.

The CETA Origin Quotas for Apparel Products

The CETA origin quotas are innovative provisions that allow limited quantities of certain kinds of products to receive preferential tariff treatment if they satisfy “alternative” rules of origin that are much more liberal and relaxed — and therefore easier to satisfy — than the product-specific rules of origin that otherwise apply. The origin quotas are set forth in Annex 5-A of the CETA Origin Protocol, and are administered in Canada by the Trade Controls Bureau of Global Affairs Canada.

The CETA provides origin quotas covering a broad range of apparel products exported from the European Union to Canada. Returning to our example of men’s suits, the origin quotas permit EU manufacturers to use 100 percent non-originating fabric woven in a third country to produce the following “originating” goods for export to Canada on a duty-free basis: up to 39,000 wool suits under tariff subheading 6203.11; and up to 281,000 suits, ensembles, jackets, blazers, trousers, or similar articles made from cotton or other textiles under tariff subheadings 6203.12-49 (see Table C.4 of Annex 5-A of the Origin Protocol). The “sufficient production” required to transform the non-originating fabric into an “originating” good involves only the “cutting of fabric and making up” of the garment. Although these quotas cover a limited quantity of goods each year, the highly liberal rule of origin provides tremendous flexibility to EU producers, allowing them the freedom to optimize their costs of production through international supply chain efficiencies, while enjoying the benefits of preferential tariff treatment and enhanced market access under the CETA.

It is worth noting that the same highly liberal rule of origin applies to the CETA origin quotas for other EU apparel products exported to Canada, including e.g., women’s suits and business attire, shirts, track suits, sports wear and swimwear, and coats, etc.

Enterprises that wish to take advantage of these origin quotas for EU apparel products will need to apply to the Trade Controls Bureau for shipment-specific import permits. These permits are issued on a “first-come, first-served” basis. Once the origin quota for a category of EU apparel products has been full utilized, no further import permits will be issued under that quota until 1st January of the following year. For more information, see Trade Controls Bureau (Global Affairs Canada), Notice to Importers (Serial No. 899), “Textiles and Apparel for Import to Canada from the European Union and its Member States (Items 86.98 and 86.99 on Canada’s Import Control List)” (September 1, 2017), available online at http://www.international.gc.ca/controls-controles/textiles/notices_imp_avis/899.aspx?lang=eng.

Conclusions

Through preferential tariff treatment accorded under the liberal rules of origin and the innovative, highly liberal “origin quotas”, the CETA provides unprecedented market access opportunities in Canada for producers, exporters, and importers of EU apparel products. While the elimination of customs duties equates to a 17-18 percent competitive advantage in the Canadian market, this is only the starting point for the analysis. The CETA’s rules of origin may provide EU stakeholders with an edge over international competitors from Canada’s other trading partners to the extent that they permit EU goods to satisfy the requirements for preferential treatment at lower costs of production.

The foregoing is just an example of how the CETA is creating new trade opportunities for businesses in the European Union and Canada. If you are a producer or exporter of products in either Canada or an EU country, an analysis of how your goods and supply chains align with the CETA rules of origin may open up new short-term and long-term opportunities, in terms of both competitive market access and strategically planning your production processes.

Tereposky & DeRose LLP regularly provides advice on how to apply and leverage the provisions of international trade agreements, including the CETA, the NAFTA, and the forthcoming CPTPP.  Should you have any questions regarding potential opportunities under these trade agreements or any other trade related issues, we are at your disposal.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

 

Protecting the Canadian Steel Industry: Is it Safe to Safeguard?

Word on the street in Ottawa is that Canada is going to commence a global safeguard inquiry to protect the Canadian steel industry. So long as done in accordance with the WTO Agreement on Safeguards, Canada is permitted to assist domestic producers that have suffered or are threatened by serious injury from increased levels of fairly traded imports. This type of inquiry has not taken place in Canada for over a decade.

The Canadian government may order the Canadian International Trade Tribunal (CITT) to conduct an inquiry to determine if increased imports of goods into Canada are causing or are threatening to cause serious injury to domestic producers of like or directly competitive goods. It is important to note it is not necessary for imports to have been dumped or subsidized for a safeguard inquiry to take place.

If the CITT makes an affirmative finding, the Canadian government is then entitled to apply “safeguard measures” on increasing imports to prevent or remedy the serious injury, or threat thereof, to domestic producers.

Bottom line – if you are a foreign steel producer that regularly imports into Canada, you must participate in such a safeguard inquiry.

What is the Process and How Can You Participate?

If the Canadian government issues a safeguard referral order to the CITT, the CITT will then issue a written notice of safeguard inquiry. That notice will describe the product(s), including tariff classification(s).

The CITT normally has 180 days to conduct a standard safeguard inquiry, but this can be extended to 270 days in complex cases. If Canada commences a steel safeguard case, and it is as complex as the previous case in 2002, then the inquiry will likely take 270 days.

The key events in a safeguard inquiry are as follows:

  • Issuance of notice of safeguard inquiry (with initial schedule of events);
  • Interested parties must file notices of participation;
  • Lawyers representing an interested party will be entitled to access all confidential information so long as they file appropriate undertakings;
  • The CITT will issue written questionnaires to domestic producers, foreign producers, importers and Canadian purchasers;
  • The Tribunal will prepare and distribute an Investigation Report;
  • Parties that support a finding of injury or threat of injury will file written submissions;
  • Parties that oppose a finding of injury or threat of injury will file written submissions;
  • Parties that support a finding of injury or threat of injury will be permitted to reply, in writing, to the written submissions of those opposed;
  • An oral hearing will be conducted,

After the oral hearing, the CITT will issue a written report to the Canadian government that describes its determination as to whether the goods subject to the safeguard inquiry are being imported into Canada in such increased quantities and under such conditions as to be a principal cause of serious injury, or thereat thereof, to domestic producers of like or directly competitive goods.

Safeguard measures are applied by the Canadian government after the CITT makes an affirmative determination. In this regard, the CITT is permitted to recommend to the government safeguard measures. Such a recommendation by the CITT is not binding upon the government. The imposition of a safeguard measure is at the discretion of the government, therefore, even if the CITT makes an affirmative finding it does not mean that safeguard measures will be imposed.

The Government may apply safeguard measures on imported goods in the form of an import surtax pursuant to the Customs Tariff or in the form of a restriction (import quota or tariff-rate quota) pursuant to the Export and Import Permits Act. The purpose is to limit imports in order to prevent or remedy the serious injury, or threat thereof, to domestic producers.

Provisional Safeguard Measures

In critical circumstances where delay would cause damage which would be difficult to repair, Canada is permitted under WTO rules to take a provisional safeguard measure pursuant to a preliminary determination that there is clear evidence that increased imports have caused or are threatening to cause serious injury. Canada’s laws require a formal report of the Minister of Finance in order to impose provisional safeguard measures. Where such a report is issued, provisional safeguard measures can be imposed prior to the completion of the CITT’s investigation.

Tereposky & DeRose regularly provides advice on Canada’s domestic trade remedies. Should you have any questions regarding this anticipated safeguard inquiry, or on Canada’s domestic trade remedies more generally, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com