Department of Finance Announces Government’s “Intent to Enact Final Safeguards”

At the end of the day on Friday 26th April, the Department of Finance published a news release regarding the “Final Safeguards to be Imposed to Protect Canadian Steel Workers”.

Recalling the Canadian International Trade Tribunal’s finding that “final safeguards are warranted for imports of heavy plate and stainless steel wire”, the news release serves to announce the Government of Canada’s “intent to enact final safeguards on these two categories of steel”. No details are provided at this stage about the form of the safeguards or how they will be administered.

The news release also announces that, in response to the Tribunal’s rulings that safeguards are not warranted with respect to the other five categories of steel products that were subject to the inquiry (i.e., imports of concrete reinforcing bar (rebar), energy tubular products, hot-rolled sheet, pre-painted steel, and wire rod), the Government will hold “an intensive 30-day consultation with industry and workers, in order to determine what further protections are required”.

Canadian law does not permit the Government of Canada to impose definitive safeguards on imported products when the Tribunal finds that such measures are not warranted.

  • Subsection 56(2) of the Customs Tariff requires the order implementing the safeguard surtax to cease to apply “at the end of the two hundredth day after the day on which the order is made”, unless the Tribunal has found, on the basis of its inquiry, that the subject goods “are being imported … under such conditions as to cause or threaten serious injury to domestic producers of like or directly competitive goods”. Therefore, where the Tribunal has concluded — as it did for the five product categories referenced above — that the subject goods are not being imported in such conditions as to cause or threaten serious injury, the safeguard measures must cease to apply.
  • In this case, the Order was made on 10th October 2018 and the 200th day is 28th April 2019. Accordingly, the Canada Border Services Agency has acknowledged that the safeguard surtaxes imposed on imports of rebar, energy tubular products, hot-rolled sheet, pre-painted steel, and wire rod will only “remain in effect up to and including April 28, 2019” (see the update to Customs Notice 18-17 on 16th April 2019).
  • Further, subsection 55(5) of the Customs Tariff imposes a two-year “cooling off” period, prohibiting the Government of Canada from making any further orders to impose a safeguard surtax “with respect to goods that have already been the subject of an order … unless, after the expiry of the order and any related orders … there has elapsed a period equal to”, in this case, “two years”.

The news release also describes an ‘action plan’ for “the next few weeks”, in which the Government commits to “take every legal action at its disposal to protect Canadian jobs and industry from unfair trade practices”. This includes “new” measures relating to closer consultation and cooperation with the domestic industry and the development of stronger (i.e., more protectionist) policies and procedures for Canada’s trade remedies regime (i.e., anti-dumping and countervailing proceedings under the Special Import Measures Act). With respect to the latter, the first ‘action plan’ item is a “targeted review of dumping cases to boost protections through higher duties”.

One of the other ‘action plan’ items is consultation “with stakeholders on the framework for remission of surtaxes imposed on imports from the U.S. in order to further incentivize the use of Canadian-made steel products”. Canadian businesses who rely on imported U.S. steel products under remission orders (or who plan to apply for remission orders in the future) should contact the Department of Finance as soon as possible to ensure that they have an opportunity to participate in this consultation process. This “new measure” could indicate an intention on the part of the Government to impose more stringent eligibility criteria and restrict access to the remission of surtaxes.

The news release is silent on the topic of refunds for Canadian importers who paid the provisional safeguard surtaxes on the steel products for which the Tribunal has found that safeguard measures are not warranted.

The news release can be accessed here: https://www.fin.gc.ca/n19/19-046-eng.asp.

Tereposky & DeRose regularly provides advice on all Canadian trade matters, including safeguard actions and related procedures. 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

On May 2nd Canadian Companies Doing Business in Cuba Could be Exposed to Substantial US Civil Liability Under Title III of the U.S. LIBERTAD Act

On 17 April 2019, U.S. Secretary of State Pompeo announced that the suspensions that have applied to the civil remedies provisions in Title III of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 since its inception will not be continued and civil remedies will be available to certain United States nationals effective on May 2nd.

In general terms, the provisions specify that any person that “traffics” in property which was confiscated by the Cuban Government on or after 1 January 1959, shall be liable to any United States national who owns the claim to such property for money damages. The term “traffics” is broadly defined to include the leasing, possessing, controlling, managing and profiting from such property without the authorization of any United States national who holds a claim to the property and extends to direct and indirect trafficking through other persons.

Canada’s Response

Pompeo’s announcement was quickly responded to in a joint EU-Canada statement. The statement includes the following which identifies three EU and Canadian responses— (i) a WTO challenge; (ii) a ban on enforcement and recognition of US judgements; and (iii) and the allowance of counter-suits:

“We are determined to work together to protect the interests of our companies in the context of the WTO and by banning the enforcement or recognition of foreign judgements based on Title III, both in the EU and Canada. Our respective laws allow any US claims to be followed by counter-claims in European and Canadian courts, so the US decision to allow suits against foreign companies can only lead to an unnecessary spiral of legal actions”.

All three responses are credible.

WTO Challenge

The WTO legality of Title III not settled. Shortly after the LIBERTAD Act was passed in 1996, the European Communities (as it was then known) initiated a WTO challenge in United States – The Cuban Liberty and Democratic Solidarity Act. The challenge included Title III of the LIBERTAD Act and alleged that the Act violated the provisions of the General Agreement on Tariffs and Trade, 1994 (GATT 1994) and the General Agreement on Trade in Services (GATS).  Canada, Japan, Malaysia, Mexico and Thailand reserved their third-party rights in the challenge. The challenge was suspended when the US and EC entered into negotiations for a mutually agreed solution and was not reactivated within the required 12-month period. The authority for the dispute settlement panel therefore lapsed and the challenge went no further.

Ban on the Enforcement and Recognition of US Judgements (Canada’s “blocking” provisions)

In Canada, the power to ban the enforcement and recognition of US judgements is implemented in the Foreign Extraterritorial Measures Act (FEMA). Section 7.1 of the Act specifies that “any judgement given under the law of the United States entitled Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1994 shall not be recognized or enforceable in any manner in Canada”.   

Counterclaims in Canadian Courts (Canada’s “claw back” provisions)

The right to bring counterclaims where a judgement has been given under the LIBERTAD Act is implemented in sections 8 and 9 of the FEMA. Under these provisions, Canadian citizens and residents, Canadian corporations (federal and provincial) and persons carrying on business in Canada can sue for and recover damages from a person in whose favour the judgement is given.

Our lawyers have extensive experience in addressing the extraterritorial application of the United States’ Cuba legislation going back to 1996 as counsel for a third party WTO Member in the 1996 WTO challenge. Since that time we have advised clients on a wide range of issues concerning the interpretation and application of the FEMA.  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

Jennifer Radford
613.237-9777
jradford@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

From “Soup to Nuts” to Services – Potential Market Opportunities in the US and EU Markets, Compliments of the Boeing and Airbus Disputes

The long running disputes between the United States and European Union concerning subsidies granted to Boeing and Airbus are moving into the trade retaliation stage. If the US and the EU impose countermeasures on one another in the form of tariffs applied strategically to certain traded goods or other measures applied to services, this could create future opportunities for exporters in other countries who supply goods or services to the US and EU markets.

The preliminary lists of products that could face retaliation have been published by the United States and the European Union. The preliminary lists collectively cover “soup to nuts” in the literal sense (i.e., “soups” and “nuts” are on the EU list) and in the figurative sense (i.e., from “beginning to the end” due to the broad range of listed products). Notably, the large civil aircraft that are the subjects of the disputes are not included on the lists. The lists have been published for public comment and consultation and are not final (see notices from the United States and the European Union).

Arbitrators will now rule on the maximum levels of the countermeasures that the US and the EU may apply, and these amounts may be less than the amounts requested. Once the arbitration rulings are issued, the US and the EU will make formal requests to the WTO Dispute Settlement Body for authorization to impose countermeasures in the amounts determined by the arbitrators. Countermeasures could include the application of ad valorem duties on imports of up to 100 percent. The US and the EU will be able to maintain the countermeasures until the subsidies at issue are withdrawn or their adverse effects are removed.

The sheer magnitude and scope of the potential countermeasures makes it worthwhile for producers and exporters in other countries to review the lists to determine whether their products are covered and whether any countermeasures could put their products in a worse or better competitive position in the US and EU markets. Likewise, importers in the US and the EU should review the lists to determine whether their established supply chains could be disrupted, in which case alternative supply sources in other countries may need to be secured. If the balance of competition in the markets for such products are affected by the potential countermeasures, new supply chains will need to be established, and this could mean significant opportunities for exporters in countries other than the US and the EU.

In the meantime, the US and the EU could avoid the disruption that the potential countermeasures would cause to one another’s markets by reaching a negotiated settlement of the disputes.

Tereposky & DeRose regularly provides representation and advice in WTO matters. Should you have any questions regarding this matter, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Canadian International Trade Tribunal Finds Safeguard Measures Warranted for 2 of 7 Classes of Steel Goods: Heavy Steel Plate and Stainless Steel Wire

On 3 April 2019 the Canadian International Trade Tribunal issued its awaited ruling in the steel safeguard inquiry.

The Tribunal was directed to conduct a safeguard inquiry concerning the importation into Canada of seven categories of steel products: (1) heavy steel plate, (2) concrete reinforcing bar, (3) energy tubular products; (4) hot-rolled sheet, (5) pre-painted steel, (6) stainless steel wire, and (7) wire rod.

It determined that safeguard measures were warranted for the following two steel product categories:

  • Heavy steel plate (other than goods originating in Korea, Panama, Peru, Colombia and Honduras); and
  • Stainless steel wire (other than goods originating in Korea, Panama, Peru, Colombia and Honduras).

For these two categories, the Tribunal recommended a remedy in the form of a tariff rate quota (TRQ) on imports from subject countries “other than goods originating in Korea, Panama, Peru, Colombia, Honduras, or countries whose goods are eligible for GPT treatment”. Importantly, the Tribunal recommended “that the Governor in Council consider a different method of allocating the in-quota volume than the first-come first-served basis used for the provisional safeguard measure”, based on evidence that this “method of quota allocation has been disruptive to the marketplace and created significant uncertainty”.

With respect to the other five product categories, the Tribunal determined that the steel goods are either (i) not being imported in such increased quantities as to cause or threaten to cause serious injury to the domestic industry, or (ii) notwithstanding the existence of a significant increase in imports, the increase is neither causing nor threatening to cause serious injury or threat thereof. Accordingly, the Tribunal concluded that safeguard measures are not warranted for:

  • Concrete reinforcing bar;
  • Energy tubular products;
  • Hot-rolled sheet;
  • Pre-painted steel; and
  • Wire rod.

The Tribunal’s report will now be considered by the Minister of Finance and Cabinet, who have only have a few weeks before the provisional duties expire to decide whether to impose “definitive” long-term safeguard measures (i.e., for a period of three years) on heavy steel plate and stainless steel wire and, if so, how such measures should be implemented.

For the five product categories for which the Tribunal found that safeguard measures at not warranted, it is reasonable to expect that (i) the provisional safeguard measures will be discontinued, and (ii) a process will be established for the prompt refund of import surtaxes that have been paid by importers during the provisional period.

The basis in Canadian law for such a refund is section 58 of the Customs Tariff, which provides as follows: “For the purpose of carrying out Article 6 of the Agreement on Safeguards in Annex 1A of the World Trade Organization Agreement, the Governor in Council may, on the recommendation of the Minister [of Finance], by order, refund any surtaxes imposed under an order made under subsection 55(1) on the basis of a report made by the Minister [of Finance]”. (The Order Imposing a Surtax on the Importation of Certain Steel Goods was made under subsection 55(1) of the Customs Tariff.)

The relevant part of Article 6 of the WTO Agreement on Safeguards (as referenced above) provides that provisional safeguard measures “should take the form of tariff increases to be promptly refunded if the subsequent investigation … does not determine that increased imports have caused or threatened to cause serious injury to a domestic industry”.

Thus, in order to ensure compliance with Canada’s WTO obligations, the Governor in Council must make an Order in Council to establish the refund process pursuant to section 58 of the Customs Tariff. It remains to be seen whether importers will be paid interest on the amounts they are refunded in the same way that importers are paid interest on refunds of provisional anti-dumping and countervailing duties under subsection 66(3) of the Customs Act and subsection 8(2) of the Special Import Measures Act.

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

What’s Next in the Canadian Steel Safeguards Action

On Wednesday 3rd April, the Canadian International Trade Tribunal will release its report in the safeguard inquiry concerning Certain Steel Goods. The report will set out the Tribunal’s decisions and reasons on whether safeguard measures are warranted in respect of seven broad categories of steel products imported into Canada: heavy plate, concrete reinforcing bar, energy tubular products (encompassing line pipe and oil country tubular goods), hot-rolled sheet, pre-painted steel, stainless steel wire, and wire rod. The report will be available online at http://www.citt.gc.ca/en/whats-new and http://www.citt.gc.ca/en/safeguards.

If the Tribunal makes an affirmative finding that safeguard measures are warranted for one or more of the above-referenced product categories, the Government of Canada will only have a few weeks to decide whether to impose “definitive” long-term safeguard measures (i.e., for a period of three years) and, if so, how such measures should be implemented.

Canadian enterprises who will be affected by such measures should be ready on 3rd April to review the Tribunal’s decision and, if necessary, file written submissions to the Minister of Finance as soon as possible to explain how the imposition of “definitive” safeguard measures on imported steel products would affect their businesses.

Canada’s Steel Safeguard Action and the Tribunal’s Inquiry

The Government of Canada initiated the safeguard action concerning the above-referenced steel products in October 2018. This involved imposing “provisional” safeguard measures in the form of tariff rate quotas (TRQs) to restrict import volumes and directing the Tribunal to conduct an inquiry to determine whether safeguard measures are warranted.

Safeguard measures are a form of trade remedy that a country can apply to protect its domestic industry when a sudden surge in import volumes causes or threatens to cause serious injury to domestic producers. In circumstances where a delay would cause harm to domestic producers, a country may impose “provisional” safeguard measures to establish immediate protection while its authorities carry out the investigations necessary to confirm whether or not such protection is warranted. The World Trade Organization (WTO) agreements require that such “provisional” measures may only be imposed for a maximum of 200 days.

In the current case, the Government of Canada imposed “provisional” safeguard measures on 25th October 2018 to provide immediate protection to domestic steel producers. These “provisional” measures will expire as of 13th May. In the meantime, the Tribunal has conducted complex factual investigations and legal analyses to determine whether, in each of the product categories, there has been a sudden increase in import volumes and, if so, whether the increased imports have caused serious injury or are threatening to imminently cause serious injury to the domestic producers of like products.

Where the Tribunal makes affirmative determinations of serious injury or threat thereof, it will also provide its recommendations as to the most appropriate remedy. In most cases, the most appropriate remedy will be a TRQ. How access to the quota is administered will determine the extent to which the remedy causes collateral damage to Canadian importers and end-users of steel products.

For example, the allocation of quota on a “first-come, first-served” basis actually encourages the sort of opportunistic, high-volume imports that a safeguard measure is normally intended to discourage. As the quotas are filled, responsible businesses that depend on well-established supply chains with long lead times can be left without sufficient access to in-quota volume when their shipments arrive in Canada. This results in intolerable levels of uncertainty and financial risk. Unfortunately, this is how the “provisional” safeguard TRQs are currently being administered.

What Happens Next?

The publication of the Tribunal’s report on 3rd April is not necessarily the end of the process. If the Tribunal determines that safeguard measures are warranted with respect to any of the product categories, it then falls to the Government of Canada to decide whether or not to impose such measures on a “definitive”, long-term basis (i.e., for a period of three years). This decision cannot be taken lightly.

While safeguard measures will provide a protected domestic market to Canadian steel producers, they will also impose significant costs on the rest of the Canadian economy. This is because imported steel products play a vital role in the Canadian economy. Domestic producers do not have the capacity to fully supply the Canadian market demand, and domestic production does not supply many specialized and high-specification products that are needed in Canada. For these reasons, Canadian manufacturers, construction companies, infrastructure firms, and other end-users often rely on a mixture of Canadian-origin and imported steel products to meet their industrial needs.

This context indicates a normal “baseline” level of imports that does not cause injury to the domestic producers. The purpose of a safeguard measure is to discourage injurious import volumes above that baseline. Ideally, it should do so without disrupting the underlying level of non-injurious trade.

In practice, however, definitive safeguard measures can cause significant disruption to the international supply chains upon which many Canadian businesses rely. As noted above, depending on how they are implemented and administered, they can impose substantial uncertainty and financial risks, drive up production and business costs, and render Canadian exports of manufactured goods less competitive in international markets.

In deciding whether or not to impose definitive safeguard measures, the Government of Canada must therefore carefully consider and weigh the important economic and political costs of doing so. There is a precedent for this: even though the Tribunal made affirmative findings in the previous steel safeguards inquiry in 2002, the Government of Canada declined to impose definitive safeguard measures.

One way or the other, the Government of Canada’s decisions in respect of each product category must be made well before the end of the 200-day provisional period on 13th May 2019. Where decisions are taken to implement definitive safeguard measures, it is expected that a procedure will be established to adjudicate written requests for the exclusion of specific products (e.g., products that are not supplied by Canadian production). It is not yet known whether the Department of Finance will administer this process itself or direct the Tribunal to initiate proceedings specifically for this purpose.

What Can Affected Businesses Do?

Importers and end-users of steel products should be ready to review the Tribunal’s report when it is released on 3rd April. As indicated above, the report will be published and available online at http://www.citt.gc.ca/en/whats-new and http://www.citt.gc.ca/en/safeguards.

Where the Tribunal finds that a definitive safeguard measure is warranted, the single most effective thing that Canadian companies can do is to make as much noise as possible about how their businesses, their employees, their customers, and the Canadian public will be adversely affected if the Government of Canada implements such a measure. Companies should also be ready to propose actions that can reduce the adverse impact on the above interests while providing safeguard protection to the Canadian domestic steel industry. Letters to the Minister of Finance and letters to the news media are the most effective means to make their case at this stage. Considering the extremely short time frames involved, stakeholders should be prepared to engage in these efforts as quickly as possible after the Tribunal’s report is released.

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