Australia Makes Six, Triggering the Countdown to the CPTPP’s Entry into Force on 30th December

On October 31st, Australia became the sixth country to formally ratify the the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) by providing written notice to the CPTPP Depository in New Zealand that its internal legal procedures to implement the Agreement are complete (see “Canada Ratifies the CETA — Is Australia Next”).

Article 3 of the CPTPP provides that the Agreement shall enter into force 60 days after at least six of the eleven signatories have ratified it. With Australia’s threshold ratification, the countdown has commenced. Accordingly, the CPTPP is expected to enter into force for Australia, Canada, Japan, Mexico, New Zealand, and Singapore on December 30th. For each of the other members (Brunei, Chile, Malaysia, Peru, and Vietnam),  the Agreement will enter into force 60 days after formal ratification is completed, on a country-by-country basis.

The Agreement will provide Canadian agricultural, fishing, and manufacturing industries with preferential market access to important consumer and industrial markets in the Asia-Pacific region. The progressive elimination of customs tariffs is expected to provide Canadian goods and materials with a competitive advantage over US exports. While trade between the United States and CPTPP countries will certainly continue, the new agreement may shift the competitive landscape in favour of Canadian producers, providing them with new export and supply chain opportunities. In Japan, the single largest CPTPP economy, Canadian enterprises will also be able to trade on even footing with their Mexican and Australian competitors (who have been enjoying the benefits of bilateral trade agreements prior to the CPTPP).

If you are a producer, exporter, or importer of products in either Canada or a CPTPP country, it’s time to start considering how the elimination of tariffs, subject to the rules of origin, and competitive market access through tariff rate quotas (TRQs) could provide new opportunities for your business. This applies not only to exporters looking to establish their products or increase their market share in CPTPP markets, but also to importers who are in a position to diversify their supply sources on competitive terms.

Tereposky & DeRose LLP regularly provides advice on the interpretation, implementation, and application of the provisions of international trade agreements, including the CPTPP, the CETA, the NAFTA, and the forthcoming USMCA.  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

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Canada Ratifies the CPTPP – Is Australia Next?

On October 29th, Canada formally ratified the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) by providing written notice to the CPTPP Depository in New Zealand that Canada’s internal legal procedures to implement the Agreement are complete. (see e.g., Global Affairs Canada, “Statement by Minister Carr on Canada’s Ratification of Comprehensive and Progressive Agreement for Trans-Pacific Partnership”)

Although Canada has not yet made the regulatory changes necessary to fully implement the CPTPP, there will be sufficient time to complete this process before the Agreement enters into force. The legal authority to modify the federal regulatory framework in relation to Canada’s CPTPP obligations was established on October 25th, when the CPTPP Implementation Act (Bill C-79) was granted royal assent. In the near future, we can expect that proposed regulatory changes  —  including both the creation of new regulations and the amendment of existing regulations —  will be published in the Canada Gazette – Part I for a period of public review and comment. (For comparison, the period for public review of the regulatory changes necessary to implement the Canada-EU Comprehensive Economic and Trade Agreement (CETA) was only 15 days.)

In the meantime, only one more formal ratification is required to trigger Article 3 of the CPTPP, which provides that the Agreement shall enter into force 60 days after at least six of the eleven signatories have ratified it. Like Canada, Australia has recently passed its domestic legislation to implement the CPTPP, and it could formally ratify the Agreement within days. If and when it does, the 60-day countdown will begin.

Tereposky & DeRose LLP regularly provides advice on the interpretation, implementation, and application of the provisions of international trade agreements, including the CPTPP, the CETA, the NAFTA, and the forthcoming USMCA.  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

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

 

Canada Passes Federal Legislation to Implement CPTPP

On October 25th, the federal legislation to implement Canada’s obligations under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) received royal assent. The next step is implementation at the regulatory and administrative levels, which ordinarily begins with the publication of proposed regulatory changes in the Canada Gazette – Part I for a period of public review.

Article 3 of the CPTPP text provides that the Agreement shall enter into force 60 days after at least six of the eleven signatories have ratified it. Formal ratification is accomplished by providing written notice to the CPTPP Depository in New Zealand that all internal legal procedures to implement the Agreement are complete. As of October 25th, four countries have ratified the CPTPP, including Mexico, Japan, Singapore, and New Zealand. Like Canada, Australia has recently passed federal legislation to implement the Agreement, and both countries are expected formally ratify in the near future. Currently, the other members of the Agreement are Brunei, Chile, Malaysia, Peru, and Vietnam.

The United States withdrew from the original form of the Agreement, the Trans-Pacific Partnership (TPP), on January 30th last year. In the absence of the United States, the preferential market access under the Agreement is expected to provide Canadian goods — particularly agricultural products — with a competitive advantage over US exports in important consumer and industrial markets in Japan and other CPTPP countries.

The CPTPP includes a provision that permits other countries to join in the future, after the Agreement has entered into force, and it is generally hoped that the United States may one day return to negotiate back into the deal.

Tereposky & DeRose LLP regularly provides advice on the interpretation, implementation, and application of the provisions of international trade agreements, including the CPTPP, the CETA, the NAFTA, and the forthcoming USMCA.  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

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Canada Announces Provisional Steel Safeguard Measures

On October 11, 2018, the Government of Canada announced that it will be imposing provisional safeguard measures on seven categories of steel products, including: heavy plate, concrete reinforcing bar (rebar), energy tubular products, hot-rolled sheet, pre-painted steel, stainless steel wire, and wire rod. The provisional safeguard measures, which will enter into force on October 25, 2018, will be implemented in the form of tariff-rate quotas (TRQs). A 25 percent surtax will be applied to all imports of covered goods that exceed the TRQ thresholds.

The Government of Canada has directed the Canadian International Trade Tribunal to conduct a public inquiry to determine whether final safeguards are warranted and, if so, to recommend appropriate remedies. The provisional safeguard measures will remain in place for up to 200 days pending the Tribunal’s findings and recommendations.

How will the provisional safeguard measures be implemented?

Global Affairs Canada will administer the TRQs by issuing shipment-specific import permits on a first-come, first-served basis. To facilitate this process, the products subject to provisional safeguards will be added to the Import Control List.

The TRQs will include:

Total quota volumes: For each product category, there is a limit on the total quantity of goods that may be imported surtax-free during the 200-day provisional safeguard period;

Quota periods: The total quota volume is separated into four 50-day periods. Once the quota for a steel product category in a particular period has been filled, imports of goods under that steel product category will be subject to a surtax for the remainder of that period. If there is unused quota remaining at the end of a 50-day period, it will be carried forward into the next 50-day period; and

Quantitative limits: For each product category, a limit is imposed on the share of the total quota that may be filled by a single country. If the volume of imports of a product category from a single country reaches the limit, then all subsequent imports of that product category from the country will be subject to the surtax for the remainder of the 200-day provisional safeguard period.

The TRQ volumes, periods, and quantitative limits for each product category will be as follows:

Heavy Plate

  • Quota for each 50-day period: 12,918 metric tonnes (MT)
  • Total quota volume for the 200-day provisional safeguard period: 51,672 MT
  • Maximum share for any single country: 23 percent

Concrete Rebar

  • Quota for each 50-day period: 35,332 MT
  • Total quota volume for the 200-day provisional safeguard period: 141,328 MT
  • Maximum share for any single country: 23 percent

Energy Tubular Products

  • Quota for each 50-day period: 64,348 MT
  • Total quota volume for the 200-day provisional safeguard period: 257,392 MT
  • Maximum share for any single country: 23 percent

Hot-rolled Sheet

  • Quota for each 50-day period: 15,299 MT
  • Total quota volume for the 200-day provisional safeguard period: 61,196 MT
  • Maximum share for any single country: 37 percent

Pre-painted Steel

  • Quota for each 50-day period: 11,635 MT
  • Total quota volume for the 200-day provisional safeguard period: 46,540 MT
  • Maximum share for any single country: 35 percent

Stainless Steel Wire

  • Quota for each 50-day period: 467 MT
  • Total quota volume for the 200-day provisional safeguard period: 1,868 MT
  • Maximum share for any single country: 25 percent

Wire Rod

  • Quota for each 50-day period: 11,513 MT
  • Total quota volume for the 200-day provisional safeguard period: 46,052 MT
  • Maximum share for any single country: 47 percent

Country-Specific Exemptions

As a general rule, the provisional safeguard measures apply to imports of the subject products from most countries. However, in accordance with Canada’s international trade obligations under various agreements, the provisional safeguard measures will not apply to:

The United States, Chile, and Israel: Imports of all product categories from these countries are exempt from the provisional safeguard measures.

Mexico: Imports of heavy plate products, rebar products, hot-rolled sheet products, pre-painted steel products, and stainless steel wire products from Mexico are exempt from the provisional safeguard measures. However, the measures apply to imports of energy tubular products and wire rod products from Mexico.

Developing countries:  Imports of all product categories from “developing countries” that are eligible for Canada’s General Preferential Tariff (GPT) are exempt from the provisional safeguard measures, with one exception: the measures will apply to imports of concrete rebar products from Vietnam.

How will the import permit process operate?

As noted above, the TRQs will be administered by way of shipment-specific import permits issued by the Trade Controls Bureau at Global Affairs Canada on a first-come, first-served basis. The application period for shipment-specific import permits will open on October 25, 2018.

The total TRQ volumes for the 200-day provisional period will be administered in the following four 50-day periods:

  • October 25 to December 13, 2018;
  • December 14, 2018 to February 1, 2019;
  • February 2 to March 23, 2019; and
  • March 24 to May 12, 2019

If the 50-day quota for a specific product category is filled, then import permits will no longer be issued for products within that category until the next 50-day period commences. During this time, such products may continue to enter Canada, but they will be subject to the 25 percent import surtax.

Additionally, if the volume of imports from any one country reaches the quantitative limit (the maximum percentage share of the TRQ that may be filled by a single country) in a specific product category, then import permits will no longer be issued for products from that country within that product category. Again, imports of such products may continue to enter Canada, but they will be subject to the 25 percent import surtax.

An importer may apply for a shipment-specific import permit up to five days in advance of their shipment’s arrival. However, the permit will be valid for only fourteen calendar days. This means that, in most cases, the shipment will be in transit before the importer can apply for a permit.

It is important to note that while the Government of Canada has allowed for the possibility of extending the validity of an import permit beyond 14 days, such an extension will only be granted if the shipment is delayed due to exceptional and unforeseen circumstances. In most cases, the import permit will be cancelled when it expires after 14 days.

Information about the permit application process, the monthly billing system, information required from applicants, and the permit application form, is available online at the Global Affairs Canada website: http://www.international.gc.ca/controls-controles/about-a_propos/impor/permits-licences.aspx?lang=eng.

Details regarding the scope of the steel product categories and the form of the countermeasures is available online at the Department of Finance website: https://www.fin.gc.ca/n18/data/18-090_2-eng.asp.

Tereposky & DeRose regularly provides advice on Canadian trade matters including safeguard actions. Should you have any questions regarding this matter, 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

 

Guide to Global Safeguard Measures in Canada

A global safeguard measure is a trade remedy intended to protect domestic producers when a sudden increase in import volumes causes or threatens to cause “serious injury” to a country’s industry. In Canada, the questions of whether and to what extent such measures are warranted are determined through a public inquiry conducted by the Canadian International Trade Tribunal. Such inquiries are triggered by a direction from the Government of Canada (i.e., the Minister of Finance) or a written complaint submitted by a domestic producer. In conducting an inquiry, the Tribunal will consider written submissions and oral testimony from interested parties — including foreign exporters, importers, and end-users in Canada — and issue its findings in a published report.

Unlike anti-dumping and countervailing measures, global safeguard measures are not automatically imposed if the Tribunal makes a positive finding of injury or threat of injury. Rather, the ultimate decision to impose safeguard measures will be made by the Governor in Council (i.e., the Prime Minister and Cabinet). However, if the Department of Finance considers there to be “critical circumstances”, such that domestic producers require immediate protection, provisional safeguard measures may be imposed while the Tribunal conducts its inquiry.

Once imposed, global safeguard measures typically take the form of an import surtax or a “tariff rate quota” (TRQ) imposed on subject goods. 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. The TRQ allocations are ordinarily determined on the basis of average historic trade flows of the subject goods into Canada from each exporting country. This approach is intended to minimize the adverse impact of the safeguard measure on normal demand for imported goods in Canada, including supply chains that rely on international sources. However, it may be necessary to adjust the analysis in circumstances where special factors have had disruptive affects on historic trade flows.

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 recent developments relating to Canadian global safeguard actions, see:

If your company has an interest in a 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 New Modernized NAFTA – The United States-Mexico-Canada Agreement (USMCA)

The “NAFTA” will soon be the “USMCA”.  The preliminary text of the new 34 chapter trilateral trade agreement has been posted on the website of the United States Trade Representative (USTR):

USMCA Text

Greater Market Access for US Dairy Products

The USMCA provides greater market access to a range of U.S. dairy products in Canada through tariff rate quotas (TRQs). TRQs permit limited quantities of certain products to be imported on a duty-free basis, while prohibitively high rates of customs duties are imposed on any over-quota shipments. Some of the dairy TRQs are substantial. For example, an annual quota of up to 50,000 metric tonnes (MT) will be phased in over six years for imports of U.S. milk. While up to 85 percent of this TRQ will be used to import milk in bulk quantities for the food processing industry, at least 15 percent will be used for “any milk” — including milk for retail sale. The level of market access provided to the United States under this TRQ is equivalent to that provided to all of the CPTPP countries. Canada also provides new TRQs for imports of cream, butter, cheese (industrial and retail), different kinds of dairy powders, yogurt, ice cream and a number of other dairy products from the United States. These commitments add to the overall market access recently granted to imported dairy products under the CPTPP and the CETA.

Autos

The regional value-content in the rules of origin for automobiles will be increased. For example, in the case passenger vehicles, light trucks and parts thereof, the value-content using the net cost method will increase to 66 percent (2020), 69 percent (2021), 72 percent (2022) and 75 percent (2023).

A labor value content requirement is also imposed that, among other things, imposes thresholds for high-wage material and manufacturing, technology and assembly expenditures based, among other things, on a US$16/hour wage rate benchmark.

North American steel and aluminum purchase requirements also apply (see below).

The agreement includes 12 side letters, two of which address automotive trade issues with the United States. If the United States imposes a measure on passenger vehicles under Section 232 of the Trade Expansion Act of 1962, the United States is required to exclude from the measure 2.6 million passenger vehicles imported from each of Canada and Mexico on an annual basis and all light trucks imported from the two countries.  Canada will also receive a US $32.4 billion annual exclusion for auto parts and Mexico a $108 billion annual exclusion.

Steel and Aluminum

In addition to the rules of origin and value-content requirements for motor vehicles, the producers of the vehicles must purchase at least 70 percent of their steel and aluminum in North America in order for the vehicles they produce to be originating and benefit from the preferential duties.

The US steel and aluminum duties imposed under Section 232 of the Trade Act of 1974 are left untouched, a notable omission from the agreement. Side letters recognize the rights of Canada and Mexico to challenge the duties under the WTO and impose countermeasures of equivalent commercial effect.

Procurement

Chapter 13 of the agreement, which addresses government procurement, applies only as between Mexico and the United States. This is a significant change for Canada. Under NAFTA, the United States, Canada and Mexico all granted national treatment and non-discrimination to goods and services for a range of covered procurements. Canada and the United States are both parties to the World Trade Organization Agreement on Government Procurement (GPA) – which will continue to ensure access to certain procurement at the central government level. Mexico, however, is not a party to the GPA. When the Comprehensive and Progressive Trans-Pacific Partnership enters into force, it will secure mutually open government procurement markets for Mexico and Canada going forward.

Investor-State Dispute Settlement (ISDS)

The ISDS procedures under Chapter 11 of the NAFTA are being phased out under Chapter 14 of the USMCA. Once the NAFTA expires, investors will have three years to bring a claim under the NAFTA rules with respect to a “legacy investment” (i.e., an investment established while the NAFTA was in force and in existence on the date when the USMCA enters into force). After this three-year period expires, there will no longer be an international ISDS procedure for US investors in Canada or Canadian investors in the United States. Recourse will continue to be available to such investors under the domestic laws and before the domestic courts of the country in which their investment is located. Meanwhile, Mexican investors in Canada and Canadian investors in Mexico will have recourse to the ISDS provisions under the CPTPP.

As between the United States and Mexico only, the USMCA will provide for ISDS procedures covering certain investments relating to government contracts in “covered sectors”, including oil and natural gas, power generation services, public transportation services, and the ownership and maintenance of public infrastructure.

Macroeconomic Policies and Exchange Rate Matters

The agreement has a chapter on macroeconomic policies and exchange rate matters. The principal obligations relate to transparency and reporting of monthly foreign-exchange reserves data and forward positions, monthly interventions in spot and forward foreign exchange markets, quarterly balance of payments portfolio capital flow, and quarterly exports and imports. The dispute settlement mechanism can be invoked where a Party fails to carry out one or more of these obligations in a recurring or persistent manner and has not remediated that failure during consultations under Article 33.7. Failures to comply with these obligations could result in the complaining Party having the right to suspend benefits (i.e., retaliate).

China

The text of the USMCA includes a provision that allows the United States and Mexico to terminate the agreement after giving six months notice, replacing it with a bilateral agreement that excludes Canada, in the event that Canada enters into a free trade agreement with China. While Article 32.10 does not expressly identify China by name, it refers to a “non-market country”, which it defines as “a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement”. The article requires a USMCA party to give notice to the other parties at least three months before the commencement of negotiations with a “non-market country”, provide as much information as possible about the objectives of the negotiation, and “provide the other Parties with an opportunity to review the full text of the agreement, including any annexes and side instruments, in order for the Parties to be able to review the agreement and assess its potential impact on this Agreement”. This article will have implications for Canada’s future trade negotiations with China.

Withdrawal and “Review” Provisions

During the negotiations the United States sought a five-year expiry provision that would terminate the agreement unless each of the Parties confirmed their wish to renew for a further five-year term. The “review and term extension” provisions in Article 34.7  specify a 16-year term for the agreement that may be renewed every six years through a “joint review” process. If the Parties confirm at the six-year mark their mutual wish to continue the agreement, this will reset the 16-year countdown. If one or more of the Parties do not confirm their wish to continue, then the clock will continue to count down to the 16-year expiry date. When this happens, however, the Parties will conduct a “joint review” process every year, and may agree to renew the 16-year term at any point before the expiry date.  This provides a “check and balance” that allows the Parties to address concerns about the agreement.

Tereposky & DeRose LLP regularly provides advice on the interpretation and application of international trade agreements.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com