Procedural Requirements for Preferential Tariff Treatment Under the CETA, Part 3 – Record-Keeping Requirements

To take advantage of the preferential tariff treatment that allows goods to be traded on a duty-free basis between Canada and the European Union, a number of mandatory requirements under the Comprehensive Economic and Trade Agreement (CETA) must be satisfied.

To start with, importers and exporters must ensure that their products qualify as “originating” under the product-specific rules of origin set out in the CETA Origin Protocol. For more information on the CETA rules of origin and how they apply, see “Exploring New Opportunities for Trade in Goods under the CETA – As Easy as Apple Pie”.

In addition, importers and exporters must ensure that certain procedural requirements are satisfied, including: (1) declarations of CETA origin; (2) restrictions on how originating goods may be transported between the European Union and Canada; and (3) obligations to maintain records relating to the exportation, importation, and origin of the goods. A failure to comply with any one of these procedural requirements risks the loss of preferential tariff treatment under the CETA, even if the goods satisfy the product-specific rules of origin. If this happens, customs duties may be applied on a retroactive basis, for a period going back a number of years, to prior shipments of the affected products. This can have a devastating financial impact on importers and create serious liabilities for exporters.

This article is Part 3 in a three-part series. Part 1 (15 September) provides a brief overview of the CETA origin declaration, and Part 2 (20 September) discusses the shipping requirements for originating goods traded between Canada and the European Union. As the final installment, this part addresses the record-keeping obligations associated with the origin declaration and shipping requirements discussed in the previous parts.

Records Supporting the CETA Declaration of Origin

For an importer of originating goods to receive preferential tariff treatment under the CETA, the exporter must provide a CETA “declaration of origin”. This statement must be provided on an invoice or any other commercial document that identifies the exporter and the covered goods. In Canada, implementation of this requirement is indicated in Customs Notice 17-30, Implementation of the Canada–European Union Comprehensive Economic and Trade Agreement (CETA) (Ottawa, September 14, 2017) (paras. 10-11).

The origin declaration, however, is merely the tip of the iceberg. It must be fully supported by records that provide comprehensive proof that the covered products meet the applicable rules of origin. This generally includes invoices, inventory management and accounting records, shipping documents and other commercial records relating to the production processes and the materials used to produce the goods. For exporters, the best approach is to establish internal systems that generate a clear and comprehensive audit trail that covers every originating product for which a CETA origin declaration is provided. Although it will incur administrative costs to set up and maintain, this approach helps to ensure that post-entry audits by customs authorities can be managed efficiently and effectively.

There are important differences between the minimum record-keeping requirements set out in the text of the CETA and the relevant legal requirements in Canada and the European Union. For example, the CETA Origin Protocol requires exporters to preserve, for a period of at least three years, copies of all supporting documents that prove the originating status of the covered products. Importers, on the other hand, are required to keep copies of documents relating to the importation of the products, but only if and to the extent they are obligated to do so under the domestic laws of the country of import.

In comparison, Canadian law requires both exporters of commercial goods from Canada and importers of commercial goods into Canada to keep, for a period of six years, all records that relate to, among other things, the origin, purchase, importation, costs, and value of the imported goods (see subsections 40(1) and 97.2(1) of the Canadian Customs Act, together with subsection 2(1) of the  Imported Goods Records Regulations and subsection 2 of the Exporters’ and Producers’ Records Regulations).

It is therefore important for businesses to carefully determine the specific domestic legal requirements that apply to their imports and exports and set up the internal accounting, inventory management, and record-keeping systems to meet these obligations. If an importer or exporter is unable to substantiate a declaration of origin to the satisfaction of the customs authorities, the preferential tariff treatment that they have relied upon may be denied, resulting in the retroactive application of customs duties.

Records supporting compliance with the CETA shipping requirements

For preferential tariff treatment, the CETA requires originating goods to be shipped directly between Canada and the European Union or, if they must be transported through a third country, to remain under customs control at all times until they reach their ultimate destination.

In order to substantiate compliance with these requirements, Canadian and EU customs authorities may require importers to disclose bills of lading or waybills that indicate the shipping route, including all points of shipment and transhipment prior to importation, and customs documents establishing that the goods remained under customs control at all times.

In Canada, these requirements are implemented in the CETA Tariff Preference Regulations. The regulations provide that originating products are only entitled to preferential tariff treatment if: (a) they are shipped to Canada from an EU country without being shipped through another country, either on a through bill of lading or, alternatively, with documents indicating the shipping route and all points of shipment and transhipment prior to the importation of the products into Canada; or (b) they are shipped to Canada from the European Union through a third country, and the importer can provide documents indicating all points in the shipping route, together with a copy of the customs control documents establishing that the products remained under customs control while in that other country.

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, while ensuring compliance with Canadian customs requirements.  Should you have any questions regarding potential opportunities, procedures or requirements under these trade agreements or any other trade related issues, we are at your disposal.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Canada Initiates Anti-Dumping Investigation Against Swedish Nitisinone Capsules

On 21 September 2018, the Canada Border Services Agency (CBSA) initiated an investigation respecting the alleged injurious dumping of certain nitisinone capsules from Sweden. The investigation follows a complaint filed by Laboratoires KABS Inc. and MendeliKABS Inc.

The subject goods are capsules and tablets of nitisinone with a dosage of 2 mg, 5 mg, 10 mg and 20 mg, whether or not they are packaged for retail, originating in or exported from Sweden. They are commonly called nitisinone capsules. The chemical name and the active molecule of nitisinone is 2-(2-Nitro-4-Trifluoromethylbenzoyl)-1,3-Cyclohexanedione (“NTBC”) and its molecular form is C14H10F3NO5.

The investigation includes nitisinone that is packaged at the time it is imported for retail consumption (i.e., packaged in plastic or glass containers with an exact unit count of the capsules  including blister packs). Nitisinone in bulk containers intended for bottling or packaging in Canada is also included. Nitisinone products in liquid suspension are excluded.

The goods in question are usually classified under the following tariff classification numbers:  3004.90.00.79, 3004.90.00.90, and 3003.90.00.90.

The CBSA will issue its preliminary determination regarding the alleged dumping on December 20, 2018. At that time, provisional anti-dumping duties could be applied.

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

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

 

Procedural Requirements for Preferential Tariff Treatment Under the CETA, Part 2 – The CETA Shipping Requirements for Originating Goods

The preferential tariff treatment provided under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) eliminates almost all of the customs duties that previously applied to goods traded between Canada and the European Union. This allows businesses to import most Canadian goods into the European Union and most EU goods into Canada on a duty-free basis, reducing landed costs and improving competitiveness and profitability.

It is important for companies seeking to take advantage of this benefit to understand that preferential tariff treatment does not automatically apply to a product merely because it is traded between Canada and the European Union. Rather, the product must qualify as “originating” in Canada or the European Union in accordance with the product-specific rules of origin set forth in the CETA Origin Protocol (see “Exploring New Opportunities for Trade in Goods under the CETA – As Easy as Apple Pie”).

In addition, exporters and importers must also ensure that certain procedural requirements are satisfied, including (1) declarations of CETA origin, (2) restrictions on how originating goods may be transported between the European Union and Canada, and (3) obligations to maintain supporting documents and customs records. Importers and exporters must ensure that they comply fully with these requirements or they risk losing preferential tariff treatment under the CETA, even if the goods satisfy the product-specific rules of origin. If this happens — for example in a post-entry audit conducted by customs authorities — duties may be applied on a retroactive basis. Depending on the volumes and values of the affected shipments, the retroactive application of even a relatively low tariff (e.g., 5 percent) on all imports going back for a number of years can result in significant financial liabilities that most businesses are not prepared to absorb.

This article, which is Part 2 in a three-part series, discusses the shipping requirements for originating goods traded between Canada and the European Union. Part 1 (15 September) provides a brief overview of the CETA origin declaration required for preferential tariff treatment. Part 3 (28 September 2018) will address the record-keeping and document production obligations associated with the origin declaration and shipping requirements discussed in Parts 1 and 2.

The CETA shipping requirements for originating goods, including transportation through third countries

In order to receive preferential tariff treatment, the CETA requires originating goods to be shipped directly between Canada and the European Union or, if they must be transported through a third country, to remain under customs control at all times until they reach their ultimate destination. No value-added processing or finishing work in third countries is permitted.

Like most free trade agreements, the CETA provides that a product shall only be considered originating — and therefore eligible for preferential tariff treatment — if, after it has been produced, it does not undergo “further production or any other operation” and “remains under customs control” while it is outside Canada or the European Union.

This means, for example, that a Canadian product that is sent to the United States for minimal processing (like a finishing step requiring special equipment) or “any other operation” before it is ultimately exported to the European Union will lose its eligibility for preferential tariff treatment, even if it continues to satisfy the product-specific rules of origin under the CETA. Such a scenario would not be uncommon in the highly-integrated North American supply and production chains for, e.g., steel and other metal alloy commodities and manufactured products.

It also means that originating EU goods that are transferred from a company’s standing inventory in the commerce of a third country for export to Canada will no longer be eligible for preferential tariff treatment under the CETA.

If the product is transported through a third country, certain basic shipping activities are permitted, including unloading, reloading, or any other operation necessary to preserve the product in good condition or to transport it to its Canadian or European destination. However, such activities must be performed under customs control, e.g., in bond. The product must not be released from customs into the commerce of the third country.

In order to substantiate compliance with these requirements, Canadian and EU customs authorities may require importers to disclose bills of lading or waybills that indicate the shipping route, including all points of shipment and transhipment prior to importation, as well as customs documents establishing that the goods remained under customs control at all times. In Canada, these requirements are implemented in the CETA Tariff Preference Regulations, and they will be discussed in more detail in Part 3.

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, while ensuring compliance with Canadian customs requirements.  Should you have any questions regarding potential opportunities, procedures or requirements under these trade agreements or any other trade related issues, we are at your disposal.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

IMPORTANT INFORMATION SESSION on Anticipated Canadian Global Safeguard Action Against Steel Products

The Department of Finance is currently assessing the written submissions provided by stakeholders during the public consultations in August to determine how best to proceed with a global safeguard action against steel imports.  It is anticipated that the Department will complete its report imminently and that a decision on the initiation of the action will be made within weeks.

Once initiated, a safeguard inquiry is expected to take more than 270 days to complete. Canadian authorities are considering whether to impose provisional safeguard measures prior to the completion of the process. If provisional measures are imposed, they could result in safeguard duties being imposed on imports of steel products as early as the initiation date of the action.

If provisional safeguard measures are imposed, they are expected to adversely impact Canadian end-users and importers of steel products and the exporters on whom they rely. The method used to administer the duties could also alter the competitive landscape between suppliers in Canada who distribute imported steel.

If you are a Canadian steel user, an importer, or a foreign exporter of steel products to Canada, it is essential that you understand how safeguard duties could impact your business prior to the initiation of the anticipated action.

Tereposky & DeRose LLP will be holding an information session via teleconference for interested users, importers and exporters. Please join us to discuss this important topic.

Wednesday, September 26th

3:00-4:00 PM (Ottawa Time)

If you are interested in participating, please contact Daniel Hohnstein at dhohnstein@tradeisds.com or 613-237-9005 to obtain the dial-in coordinates.

Background Information on the Anticipated Safeguard Action

Provisional Duty Risk

https://tradeisds.com/index.php/importers-and-users-of-imported-steel-products-need-to-be-wary-of-potential-provisional-safeguard-duties-immediately-upon-initiation-of-the-anticipated-safeguard-action/

Notice to Steel Users, Importers & Exporters

https://tradeisds.com/index.php/notice-to-steel-users-importers-and-exporters-is-your-company-ready-if-canada-initiates-a-global-safeguard-action-against-steel-products/

Decision on Safeguard Action Expected within Weeks

https://tradeisds.com/index.php/decision-on-steel-safeguards-action-expected-within-weeks/

Please do not hesitate to contact us if you have any questions regarding this invitation.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Importers and Users of Imported Steel Products Need to be Wary of Potential “Provisional” Safeguard Duties Immediately Upon Initiation of the Anticipated Safeguard Action

The anticipated steel safeguard action includes a significant risk of “provisional” safeguard duties.  These duties can be imposed immediately upon initiation of a safeguard action, prior to the merits of the action being determined by the Canadian International Trade Tribunal (CITT).  The duties can remain in place for 200 days.

What this means is that importers and users of imported steel products that might be included in a safeguard action need to contemplate such duties in the imminent future and cannot wait until the CITT issues its report (up to 270 days after initiation) and the Government considers and decides whether and how to follow the report’s recommendations (requiring additional time).

The provisional duties can take the form of ad valorem duties (e.g., an x% import duty) or a tariff-rate quota (TRQ) which allows a certain quantity of imports under the existing regular customs duty and applies a higher safeguard duty to imports above that quantity.

If a TRQ is used, the administration of the TRQ could affect whether current importers and users will be able to secure traditional supply volumes from import sources. The administration of the TRQ could also favour some importers and users over others. Options include a first-come-first-served rule whereby those importers who get their steel products into Canada before the in-quota amount fills will benefit from the lower duties.

Tereposky & DeRose is assembling like-minded Canadian steel users, steel importers, and foreign steel exporters who oppose the application of safeguard measures in order to represent their interests in an efficient and cost-conscious manner (see “Notice to steel users, importers and exporters: Is your company ready if Canada initiates a global safeguard action against steel products?”). If your company has an interest in opposing the Canadian safeguard action, please do not hesitate to contact us.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Procedural Requirements for Preferential Tariff Treatment under the CETA, Part 1 – The CETA Declaration of Origin

For companies that trade in goods, the Canada-EU Comprehensive Economic and Trade Agreement (CETA) offers both new and enhanced market access opportunities in Canada and the European Union. By eliminating almost all of the customs duties that previously applied, the CETA has reduced the landed costs of EU goods imported into the Canadian market and Canadian goods exported to EU markets, making them more competitive and profitable than they were before.

These outcomes apply not only to finished products, but also to materials and components imported for use as production inputs. This means that the CETA opens up new supply chain possibilities, creating business opportunities for suppliers while helping manufacturers to diversify their sources of supply and optimize their costs of production.

The preferential tariff treatment under the CETA that allows companies to import goods on a duty-free basis does not automatically apply to all goods that are traded between Canada and the European Union. Rather, businesses must ensure that their products qualify as “originating” in accordance with the rules of origin set forth in the CETA Origin Protocol. Generally, these product-specific rules require originating products to either be “wholly obtained” or to undergo “sufficient production” within CETA countries. For more information on the CETA rules of origin and how they work, see “Exploring New Opportunities for Trade in Goods under the CETA – As Easy as Apple Pie”.

In addition, important procedural requirements must also be met, including (1) declarations of CETA origin provided by exporters, (2) restrictions on how originating goods may be transported between the European Union and Canada, and (3) obligations to maintain supporting documents and customs records. Importers and exporters must ensure that they comply fully with these requirements or they risk losing preferential tariff treatment under the CETA, even if the goods satisfy the product-specific rules of origin. If this happens, customs duties may be applied on a retroactive basis to prior shipments of the affected products, and this can have a devastating financial impact on importers.

As Part 1, this article provides a brief overview of the requirement to provide a CETA declaration of origin. Part 2 (20 September 2018) will discuss the shipping requirements for originating goods. Part 3 (28 September 2018) will address the record-keeping and document production obligations associated with the CETA origin declaration and shipping requirements discussed in Parts 1 and 2.

The CETA Origin Declaration

In order for originating goods to receive preferential tariff treatment under the CETA, the exporter must provide a “declaration of origin”. Unlike the distinct certificate of origin required under the North American Free Trade Agreement (NAFTA), the CETA declaration is a statement that may be provided on an invoice or any other commercial document that identifies the exporter and the covered goods. However, like a NAFTA certificate of origin, a CETA declaration can be set up to apply to multiple shipments of identical originating products for a period of up to 12-months.

Instructions regarding the required text of the declaration are set out in Annex 2 of the Origin Protocol (available online with Canada and the European Union). Generally, the text consists of the following core statement, which may need to be supplemented with additional information under certain circumstances:

The exporter of the products covered by this document declares that, except where otherwise clearly indicated, these products are of Canada/EU preferential origin”.

For EU goods imported into Canada, the Canada Border Services Agency (CBSA) requires that, “in order to claim the preferential tariff treatment accorded under the CETA, importers must have in their possession the Origin Declaration completed by the exporter in the EU country or other CETA beneficiary of export” (see Customs Notice 17-30, “Implementation of the Canada–European Union Comprehensive Economic and Trade Agreement (CETA)”, 14 September 2017). This means that companies importing EU goods into Canada should ensure that they have obtained a copy of the CETA origin declaration from the exporter before the goods arrive at the border.

In most cases, the most straightforward approach will be to arrange for the vendor/exporter to provide the CETA origin declaration directly on the commercial invoice(s) associated with the goods. This should simplify administrative processing by customs authorities and help to ensure that each shipment of originating EU products will receive preferential tariff treatment when it crosses the border into Canada. It may also prove helpful in the event of a post-entry audit.

Finally, it should be noted that Canadian law requires both exporters and importers of commercial goods in Canada to keep, for a period of six years, all records that relate to the origin of the goods (among other things). These record-keeping requirements will be addressed in more detail in Part 3.

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, while ensuring compliance with Canadian customs requirements.  Should you have any questions regarding potential opportunities, procedures or requirements under these trade agreements or any other trade related issues, we are at your disposal.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

 

Advancing a Progressive Trade Agenda Through Investment Agreements: Canada Launches Public Consultation on Foreign Investment Promotion and Protection Agreements

On 14 August 2018, the Honourable Jim Carr, Minister of International Trade Diversification, announced the launch of a public consultation on Canada’s foreign investment promotion and protection agreements (FIPAs). This is Canada’s first formal update of its 2004 model FIPA, which is largely based on the North America Free Trade Agreement (NAFTA).

Currently, Canada has 36 FIPAs. Twenty have been concluded since 2004, including one with China that came into force in 2014. Canada’s FIPAs protect over $ 653 billion worth of Canadian foreign investment overseas, approximately 30% of Canada’s GDP in 2017, according to the Government of Canada.

One significant feature of FIPAs—like other international investment agreements—is that they include investor-state dispute settlement (ISDS) mechanism. ISDS allows investors to sue host government in international arbitration for the latter’s alleged violation of the treaty. FIPAs have been frequently used by Canadians and Canadian companies to sue foreign governments. To date, 28 cases were litigated under Canadian FIPAs and investment chapters in free trade agreements (FTAs). Canadian companies also initiated arbitration under the NAFTA in 17 instances and 15 of them were against the U.S. government. Meanwhile, investors have also brought Canada before international tribunals. Out of the 27 cases against Canada to date, 26 of them were brought by the U.S. investors under the NAFTA.

As Canada aims to reflect and respond to the interests of all Canadians, especially women, Indigenous peoples and owners of small and medium-sized enterprises through the “progressive trade agenda”, it is curious to see what the new Canadian model FIPA would look like. Canada’s most recent treaty experience in the freshly inked Comprehensive Economic and Trade Agreement (CETA) with European Union (EU) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with other trading partners may shed some light. However, the negotiation of both treaties started long before Canada proposed the “progressive trade agenda”, therefore, they may not fully reflect Canada’s current view on progressive trade.

Many issues in FIPA should be addressed for Canada to implement the progressive trade agenda and one of them is investment dispute resolution. What approach Canada should take regarding the ISDS? Canada took different approaches toward the ISDS in CETA and CPTPP. In CETA, Canada embraced EU’s proposal of a standing Appellate Tribunal for investment arbitration. At this moment, however, both the EU and Canada have put this part on hold without implementation. In CPTPP, the ISDS mechanism continues to be once-for-all arbitration (subject to very limited review). Given the rise of the recent debate on ISDS, Canada should consider which approach is most suitable to promote its free trade agenda in its future FIPAs.

The public is invited to submit their opinions until October 28, 2018. The details can be found here.

Tereposky & DeRose has extensive arbitration, consultation and negotiation experience under NAFTA and CETA. If you are interested in participating in the FIPA public consultation, we are happy to assist.
Contact

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

J. Cameron Mowatt
604.318.2300
cmowatt@tradeisds.com

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Decision on Steel Safeguards Action Expected Within Weeks

 

Navdeep Bains, Canada’s Minister of Science, Innovation and Economic Development, has announced that a decision will be made “within weeks” on the initiation of a global safeguard action on imported steel products.  This statement was made during a keynote address at the Hamilton Steel Summit on September 7th (see Ian Bickis, “Canadian decision within weeks on steel safeguards, says Bains”, Financial Post (September 7, 2018), available online at https://business.financialpost.com/pmn/business-pmn/minister-of-economic-development-says-decision-within-weeks-on-steel-safeguards). The Department of Finance is currently assessing the written submissions provided by stakeholders during the public consultations in August to determine how best to proceed.

If a decision is made to move forward, and the Canadian International Trade Tribunal initiates a safeguard inquiry, steel users, importers and exporters will have only 15 days to file their notices of participation and representation. Replies to the Tribunal’s questionnaires will likely be due 30 days after the initiation of the inquiry. In addition, provisional safeguard duties may be applied immediately and remain in place for up to 200 days during the Tribunal’s inquiry.

If your company could be adversely affected by Canadian safeguard duties on imported steel products, it is essential to immediately begin planning your participation so that your company’s interests can be taken into consideration in the Tribunal’s public inquiry process.

Tereposky & DeRose is assembling like-minded Canadian steel users, steel importers, and foreign steel exporters who oppose the application of safeguard measures in order to represent their interests in an efficient and cost-conscious manner (see “Notice to steel users, importers and exporters: Is your company ready if Canada initiates a global safeguard action against steel products?”). If your company has an interest in opposing the Canadian safeguard action, please do not hesitate to contact us.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

The CETA Does not Exclude EU Steel Products from Canadian Global Safeguard Measures

If Canada imposes global safeguard measures on imported steel products, the Canada-EU Comprehensive Economic and Trade Agreement (CETA) does not prevent such measures from applying to subject goods from the European Union. While many of Canada’s free trade agreements either require or permit the Government of Canada to exclude the goods of a trading partner from the scope of a global safeguard measure (as long as those goods are not a principal cause of the harmful effects that the safeguard action is intended to address), the CETA does not include such provisions.

Canada’s impending global safeguards action

The Government of Canada is currently considering the initiation of a global safeguard action, including the imposition of provisional safeguard measures, on certain steel products imported into Canada (see Department of Finance,  “Invitation to Submit Views”); see also Tereposky & DeRose LLP, “Notice to steel users, importers and exporters: Is your company ready if Canada initiates a global safeguard action against steel products?”).

The objective of such an action is to protect Canadian producers when a sudden increase in import volumes causes or threatens to cause “serious injury” to the domestic industry. In this case, there is concern that imports of steel products may surge to harmful levels to the extent that shipments are diverted from the United States into Canada as a consequence of the U.S. tariffs imposed under section 232 of the Trade Expansion Act of 1962.

Global safeguard measures typically take the form of an import surtax imposed on subject goods or a “tariff rate quota” (TRQ). The latter permits a limited quantity of subject goods to be imported under the normal tariff treatment, after which a surtax is imposed on all shipments that exceed this threshold. Whether and to what extent such measures are warranted are questions determined through a public inquiry conducted by the Canadian International Trade Tribunal, which will consider submissions from interested parties and issue its findings in a published report. However, the ultimate decision on the imposition of safeguard measures will be made by the Governor in Council (i.e., the Prime Minister and Cabinet). While the Tribunal conducts its inquiry, provisional safeguard measures may be imposed if the Department of Finance considers there to be “critical circumstances” requiring immediate protection. Provisional safeguard measures are being contemplated in the current case.

Exclusions for certain countries under regional free trade agreements

Canada’s WTO obligations under the General Agreement on Tariffs and Trade 1994 and the Agreement on Safeguards require that a global safeguard measure must be applied to imports of a subject product “irrespective of its source” — that is, from all sources of supply. However, WTO Members may exclude imports from certain countries when the provisions of their regional free trade agreements require or permit them to do so.

For example, Article 802 of the NAFTA requires Canada to exclude imports of Mexican and U.S. goods from a global safeguard measure unless such imports “account for a substantial share” of total imports and “contribute importantly” to the serious injury that is being caused or threatened. Similar requirements are provided in Canada’s free trade agreements with Israel (Article 4.6) and Chile (Article F-02). Accordingly, the Canadian International Trade Tribunal Act (CITT Act) requires the Tribunal, in conducting its inquiry, to specifically determine whether imports of the subject goods from each of these countries satisfy the “substantial share” and “important contribution” criteria. Absent such findings in the Tribunal’s report, imports of subject goods from the United States, Mexico, Israel and Chile must be excluded from any safeguard measures imposed by the Government of Canada.

In addition, provisions in Canada’s free trade pacts with the Republic of Korea (Article 7.1), Colombia (Article 701), Panama (Article 8.02), and Peru (Article 701) permit, rather than require, Canada to exclude subject imports from these countries if such imports are not a “substantial cause” of the serious injury or threat thereof. Again, the CITT Act facilitates this option by requiring the Tribunal to investigate and specifically determine whether imports from these countries constitute a “principle cause of the serious injury or threat of serious injury” and to include these findings in its report.

No safeguard exclusions under the CETA for EU-origin products

Articles 3.4 through 3.6 of the CETA deal with global safeguard measures. Conspicuous by its absence is any provision, similar to those discussed above, that would require or permit the Government of Canada to exclude subject goods from the European Union.

Rather, Article 3.4 affirms Canada’s rights and obligations under the WTO agreements and further provides that the CETA rules of origin shall not apply to global safeguard measures. Article 3.5 simply sets forth transparency commitments that reinforce and build upon Canada’s WTO obligations relating to the provision of information and the public report regarding the Tribunal’s inquiry. While Article 3.6 requires Canada to “endeavour” to impose global safeguard measures “in a way that least affects bilateral trade”, this does not constitute a requirement or an express option to exclude imports of EU products. Rather, in its summary of CETA Chapter 3 (available online at http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/chapter_summary-resume_chapitre.aspx?lang=eng#a3), the Government of Canada explains as follows:

“Canada has long held the view that trade remedies should be applied consistently from country to country, and that the multilateral framework of the WTO is therefore best suited to develop trade remedy disciplines. Accordingly, the Trade Remedies chapter of CETA is structured mainly as a reaffirmation of the rights and obligations of Canada and the EU with respect to WTO trade remedies agreements.”

Where there are no bilateral exclusions provided under the CETA, the WTO Agreement on Safeguards requires the Government of Canada to include subject goods of EU origin within the scope of its global safeguard measures.

Tereposky & DeRose LLP regularly provides advice on international trade agreements, including the CETA and the NAFTA, and trade remedy matters such as global safeguard measures.  Should you have any questions regarding these or any other trade-related issues, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

 

Notice to Steel Users, Importers and Exporters: Is Your Company Ready if Canada Initiates a Global Safeguard Action Against Steel Products?

On 14 August 2018, the Canadian Department of Finance launched a public consultation on a possible global safeguard action on imports of certain steel products. The comment period ended 29 August 2018. The Department is now reviewing the comments and will decide whether and how to initiate an action.

If the Canadian International Trade Tribunal initiates a safeguard inquiry, steel users, importers and exporters will have only 15 days to file notices of participation and representation. Replies to Tribunal questionnaires will likely be due 30 days after initiation.  If your company could be adversely affected by future safeguard duties, it is essential to immediately begin planning your participation so that your company’s interests can be taken into consideration in the inquiry.

If your company is a Canadian user of steel products, an importer of steel products into Canada, or a foreign exporter of steel products to Canada, you need to consider the following:

Scope of Safeguard Inquiry

The consultation notice of August 14th indicated that imports of the following steel products would be considered in a safeguard inquiry:

  • Steel plate: e.g., for construction and manufacturing heavy machinery and vehicles;
  • Concrete reinforcing bar (“rebar”): e.g., for strengthening and preventing concrete from cracking;
  • Energy tubular products: e.g., for oil and gas exploration, extraction and transmission;
  • Hot-rolled sheet: e.g., for construction and manufacturing motor vehicles, agricultural support products, and welded pipe and tube products;
  • Pre-painted steel: e.g., for construction, industrial packaging, and manufacturing appliances;
  • Stainless steel wire: e.g., for manufacturing pins, nails, springs, filters and conveyor belts; and
  • Wire rod: e.g., for manufacturing wires, springs, wire mesh, fasteners and nails, automotive and industrial components.

 

More detailed descriptions of these products are available here.

If your company uses or deals in steel products that could be covered by these categories, you need to consider participation in the safeguard inquiry.

Class of Goods

The Tribunal will determine the classes (i.e., categories) of goods that it will investigate in the inquiry.  Your company’s case could be stronger if your steel products are in a specific, discrete category rather than a general category. The classes of goods may track the categories identified above, but they could also be more general or more specific. Are your company’s steel products a sub-set of one of the categories identified above?

Exclusions

If your company’s steel products serve a market segment that is not fully served by the Canadian domestic steel producers, there might be a basis to request an exclusion for your products from the scope of future safeguard measures. In the 2002 steel safeguard inquiry, a large proportion of product exclusion requests were granted. Since that time, the procedural requirements and evidentiary thresholds for product exclusions have become more demanding. Provided that these requirements and thresholds are met, a product exclusion might be worthwhile pursuing.

Country-Specific Rulings

Although global safeguards will generally apply to subject steel products regardless of their country of origin, imports from certain countries that have free trade agreements with Canada could be treated differently and might be excluded from future safeguard measures. Such countries include the United States, Mexico, Korea, Chile, Israel, Columbia, Panama and Peru.

If your foreign steel products are supplied from a country that has a free trade agreement with Canada, this possibility must be considered.

Strength of the Canadian Domestic Industry’s Safeguard Case?

The safeguard inquiry will examine whether the targeted imported steel products are being imported in such increased quantities and under such conditions that they are a cause of serious injury, or threat thereof, to domestic producers of like products or directly competitive goods. The Tribunal will conduct this inquiry separately for each class of goods.  Detailed legal requirements apply to all elements of the inquiry. The strength of the domestic industry’s case will have to be assessed on the basis of each product class once the product classes are announced and the data are available.

The Way Ahead

Canadian steel users, steel importers, and foreign steel exporters to Canada must consider participation in a future safeguard inquiry to ensure that their interests are considered by Canadian authorities. Tereposky & DeRose is assembling like-minded Canadian steel users, importers, and foreign steel exporters who oppose the application of safeguard measures in order to represent their interests in an efficient and cost-conscious manner.

Please do not hesitate to contact us if your company has any of the interests identified above.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com