Canada-EU Free Trade Agreement Now in Force

On September 21st, the Canada-EU Comprehensive Economic and Trade Agreement (CETA) entered into provisional application, meaning that the majority of its provisions are now in force in Canada. These provisions include, among other benefits:

  • the immediate elimination of most customs duties on imported EU-origin goods to which tariff rates previously applied;
  • guaranteed market access and non-discriminatory treatment for EU firms when they participate in public procurement opportunities at the federal, provincial/territorial, and municipal levels of government in Canada (for contracts above the applicable value thresholds), and equivalent rights for Canadian firms in the European Union;
  • enhanced intellectual property (IP) rights, including new protections for certain geographical indications (GI) identifying goods originating in specific regions (e.g., “Feta cheese” from Greece);
  • and liberalized rights of mobility and temporary stay for key business personnel and investors, independent professionals, and contractual service suppliers visiting Canada from the European Union and vice versa.

In practical terms, what does this mean for business owners and other stakeholders?

In some cases, it will mean new opportunities for trade and commerce. For example, a Canadian retail business can now import leather handbags or wallets from Italy on a duty-free basis. Yesterday, customs duties would have applied to these goods at rates of 10 per cent and 8 per cent, respectively. This represents an opportunity not only for Italian producers, but also for Canadian distributors and retailers. Tariff elimination is even more dramatic on men’s and women’s suits and leather footwear (a drop from 17-18 per cent yesterday to duty free today).

Similarly, EU construction firms will have preferential market access to high-value infrastructure projects procured by municipal governments throughout Canada; none of Canada’s other trading partners have guaranteed access to these opportunities. Until the Government of Canada completes its electronic single point of access for notices of all public procurements at every level of government throughout Canada, information on Canadian opportunities can be accessed through the “Doing Business” hub on the official website of the Canadian Free Trade Agreement (CFTA): https://www.cfta-alec.ca/doing-business/. Canadian firms will have equivalent access to government procurement opportunities throughout the European Union, which can be identified on the “tenders electronic daily” (TED) website: http://ted.europa.eu/TED/main/HomePage.do.

The other perspective, however, is that the market access and non-discrimination commitments in the CETA will mean increased competition for Canadian and EU businesses in their local markets, i.e., from the new overseas sources of high-quality or lower-cost goods and services. Thus, in some sectors, the negotiated outcomes of the CETA will mean a shake-up in the existing trade flows and supply chains, as market forces establish the most efficient relationships, structures, and prices. In navigating these changes in the competitive landscape, the businesses that will enjoy the greatest success are those that are most attentive and adaptable to the CETA’s effects.

Market access under the CETA is neither effortless nor without compliance considerations. To take advantage of the new preferential tariff treatment, for example, businesses must ensure that their goods satisfy the requirements set forth in the CETA Protocol on Rules of Origin and Origin Procedures, as implemented into the domestic laws of Canada and the European Union, respectively. This involves determining whether a good produced in Canada or an EU Member State qualifies as “originating” (e.g., pursuant to the applicable tariff shift rules and/or regional value content requirements that constitute “sufficient production”), and ensuring that a declaration of origin is correctly made out and fully supported by the appropriate documentation. If a declaration of CETA origin cannot be substantiated during a customs audit, a business may be required to pay, on a retroactive basis, the standard rates of duty applicable to all shipments that it has imported into Canada. Considering that this liability can extend to all imports going back for a period of up to four years, it is essential for companies to ensure that their declarations of origin are accurate and their record-keeping is precise.

Tereposky & DeRose LLP has undertaken a provision-by-provision analysis of the CETA, closely monitored its implementation into Canadian law, and assessed the opportunities and limitations of the market access and other benefits that it provides to Canadian and EU stakeholders.

Contact:

Daniel Hohnstein

Tel: 613.903.7015, ext. 104

Email: dhohnstein@tradeisds.com

 

Canadian Anti-dumping and Countervailing Investigation Initiated for Certain PET Resin

On August 18th, 2017, the Canada Border Services Agency (CBSA) initiated anti-dumping and countervailing investigations pursuant to the Special Import Measures Act (SIMA) relating to allegations of dumping and subsidizing of certain polyethylene terephthalate resin (PET resin) originating in or exported from the People’s Republic of China (China), the Republic of India (India), the Sultanate of Oman (Oman) and the Islamic Republic of Pakistan (Pakistan).

These investigations have been initiated as a result of a Complaint filed by Selenis Canada, a PET resin manufacturer operating out of Montreal.

PET resin is a thermoplastic polyester polymer. Products manufactured with PET resin are clear, sterile, light, and thermally stable.  PET resin may be sold in bulk form, such as chips or pellets, to end users.  It is ultimately used to produce bottles and containers for liquids and food products, industrial strapping, and carpet. The most common end-use applications for bottle-grade PET resin include soda bottles, water bottles, and other containers for food, beverages, household, and automotive product storage.

Prior to January 1, 2017, PET resin goods were normally classified under the following Harmonized System (HS) codes:

  • 3907.60.00.10
  • 3907.60.00.90

Beginning January 1, 2017, under the revised customs tariff schedule, the goods in question would normally be imported under the following HS codes:

  • 3907.61.00.00
  • 3907.69.00.10
  • 3907.69.00.90

In 2016, 117,773,036 kg of PET resin was imported into Canada at a total value of CAD 174,047,072.

With the initiation of these investigations, the Canadian International Trade Tribunal (“CITT”) has commenced a preliminary inquiry to determine whether the evidence adduced in the Complaint discloses a reasonable indication that imports are harming the Canadian producer. The CITT will issue its decision by October 17, 2017, with a Statement of Reasons to follow by November 1, 2017. Concurrently, the CBSA will investigate whether the imports are being sold in Canada at unfair and/or subsidized prices. It will make its preliminary decision by November 16, 2017, with a Statement of Reasons to follow by December 1, 2017.

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

Jennifer Radford
613.903.7015, ext. 103
jradford@tradeisds.com

Daniel Hohnstein
613.903.7015, ext. 104
dhohnstein@tradeisds.com

 

 

U.N. Security Council’s Resolution Toughens its Sanctions Regime against North Korea

On August 5, 2017, in response to the Democratic People’s Republic of Korea’s (North Korea) recent ballistic missile tests, the United Nations Security Council (UNSC) unanimously adopted resolution 2371 (resolution), toughening the already existing sanctions against North Korea. By doing so, the UNSC hopes to pressure North Korea to recommence the Six-Party Talks (between the United States, China, Japan, Russia, South Korea and North Korea) on denuclearization which have been on hold since North Korea withdrew from them in 2009.

The resolution prohibits the supply, sale and transfer of several of North Korea’s key commodities, including coal, iron, iron ore, seafood, lead and lead ore.   It also directs member states not to increase the total number of work authorizations for North Korean nationals unless approved by the Security Council Committee established pursuant to resolution 1718 (2006) (Committee). It also directs member states to prohibit the opening of new joint ventures or cooperative entities with North Korean entities and individuals, or expand existing joint ventures through additional investments.

The UNSC reaffirms that the measures imposed by the resolution are not intended to have adverse humanitarian consequences for the civilian population of North Korea or to affect negatively those activities.  On a case-by-case basis, the Committee may exempt any activity from the measures imposed if it determines that such an exemption is necessary to facilitate the work of such organizations.

All member states are to report to the UNSC within 90 days of the adoption of the resolution on concrete measures they have taken in order to implement effectively its provisions. If successfully implemented and enforced, this new set of sanctions will further isolate North Korea’s economy from the international community. It is estimated that these new measures represent approximately $1 billion of North Korea’s estimated $3 billion annual export revenue.

Canada maintains its own sanctions regime against North Korea under the Special Economic Measures Act (SEMA). The Canadian sanctions already go well beyond the minimum UN requirements and the resolution. With the exception of very limited circumstances, Canadians are already prohibited from exporting and importing goods to and from North Korea. As such, the new UNSC resolution will not have any significant impact on existing Canadian businesses.  The only change the resolution will bring to Canada’s sanction regime is regarding the issuance of new work permits to North Korea nationals, although already issued permits will not be cancelled.

The lawyers at Tereposky & DeRose have significant experience in the design and implementation of sanctions-related compliance programs, including policies, procedures, employee training, and internal control mechanisms.  They also regularly assist both Canadian and international businesses, financial institutions, and individuals with internal investigations when “red flags” appear, and provide advice on compliance in these areas. Where breaches have occurred, they have worked closely with their clients in making voluntary disclosures and in engaging with the ensuing investigations conducted by the RCMP and Global Affairs Canada.

If you would like to discuss any aspect of the Canadian sanctions regime, contact Vince DeRose, Jennifer Radford or Stephanie Desjardins at:

Vince DeRose
613.903.7015, ext. 102
vderose@tradeisds.com

Jennifer Radford
613.903.7015, ext. 103
jradford@tradeisds.com

Stephanie Desjardins
sdesjardins@tradeisds.com

Parliamentary Standing Committee Calls For Improvements in Canada’s Sanctions Regime

The Standing Committee on International Affairs and International Development recently released its report entitled “A Coherent and Effective Approach to Canada’s Sanctions Regimes: Sergei Magnitsky and Beyond”.

The report looks at the effectiveness of sanctions as a foreign policy tool, and considers the regulatory and administrative structures the Government of Canada has put in place to implement sanctions measures through the Freezing Assets of Corrupt Foreign Officials Act, the Special Economic Measures Act and related legislation. The report goes on to discuss issues related to private sector compliance with sanctions regulations as well as their enforcement by the Government. Thirteen recommendations are made in the report, with a focus on promoting an effective and coherent Canadian sanctions program.

One of Tereposky & DeRose’s partners, Vince DeRose, testified before the Standing Committee. Mr. DeRose’s testimony was relied upon by the Standing Committee in developing several of its recommendations.

Canada’s Sanctions Regime is Complex

The report highlights the complexity of Canada’s sanctions system.

There exist significant differences between sanctions regimes and the variety of measures imposed. These range from blanket prohibitions to sectoral or geographic measures, and those targeting individuals and entities.

The use of multiple pieces of legislation, namely the Freezing Assets of Corrupt Foreign Officials Act, the Special Economic Measures Act, the United Nations Act, the Export and Import Permits Act, further complicates the imposition of sanctions. A given sanctions regime can be governed by a series of regulations, each with their own enabling Act, all of which must be read and interpreted together.

Moreover, this complexity extends into the administration of Canada’s sanctions system, which has both domestic and international elements, and involves law enforcement, financial regulation and border control.

Restructuring the Administration of Canada’s Sanctions Regime

While the government enacts and administers Canada’s sanctions regimes, its effectiveness ultimately rests with the private sector.

Private sector firms must have a clear understanding of the scope of sanctions measures – including clear understandings of both the restriction put in place and related exceptions. Vagueness and lack of clarity result in over-compliance, wherein firms and individuals choose to follow the safest or broadest interpretation of a measure to avoid risking punishment for non-compliance. The cost of complying with sanctions regulations also affects how the private sector chooses to implement sanctions measures.

The more difficult sanctions regulations are to interpret, the greater the risk for over-compliance. The cost of complying with a sanctions regime further amplifies this problem, as Canadian businesses unwilling to bear the compliance costs will turn away legitimate business from a country targeted by sanctions.

While significant, large sophisticated institutions like banks can carry the burden of compliance, smaller businesses, often lack the resources and expertise to do so. Many companies in Canada, particularly small and medium-sized enterprises, do not have sophisticated and expensive control systems in place to ensure that they remain compliant with Canada’s economic sanctions.

The Standing Committee concluded that there is a need to restructure the administration of Canada’s sanctions regime. Changes are needed to better reflect their essentially dual nature – as both a tool of international statecraft and a domestic regulatory system – and to ensure that the proper resources are provided to fulfil both elements of their administration.

A number of witnesses, including Vince DeRose from Tereposky & DeRose, requested written guidance on how programs for compliance with Canadian economic sanctions can be developed and how Canadian companies that have already developed compliance programs can determine whether their existing compliance programs are adequate from the perspective of the Canadian government. The Standing Committee agreed, recommending that the Government of Canada provide comprehensive, publicly available, written guidance to the public and private sectors regarding the interpretation of sanctions regulations to maximize compliance. The Standing Committee also concluded that the Government of Canada should produce and maintain a comprehensive, public and easily accessible list of all individuals and entities targeted by Canadian sanctions containing all information necessary to assist with the proper identification of those listed.

In our view, implementation of these recommendations will improve Canada’s sanctions regime. Most importantly, such changes should better facilitate cost-effective compliance with Canada’s sanctions regime by the private sector.

The Enforcement of Sanctions Legislation

The Standing Committee was of the view that criminal violations are likely occurring and going uninvestigated.

The Standing Committee also observed that the reasons why so few criminal investigations and prosecutions for sanctions violations have occurred was not fully answered by testimony. Neither the RCMP nor CBSA representatives suggested that any aspect of the legislation impeded prosecutions, nor was this suggestion made by any other witness.

The testimony from a number of witnesses supported a conclusion that the lack of investigations arose because of the combination of lack or resources, the prioritization of investigations by the RCMP with focus placed on anti-terrorism and violent crime, and a general expectation and assumption by the government that Canadian companies will comply with Canadian law.

The Standing Committee concluded that the proper enforcement of sanctions measures is critical to the overall effectiveness of Canada’s sanctions regimes and that the Government should make enforcement a priority. The Standing Committee recommended that the Government ensure that law enforcement agencies highly prioritize the enforcement of sanctions measures and are given the necessary resources to fulfil their duties.

As this recommendation is implemented, it will become more important than ever for Canadian businesses to ensure compliance with Canada’s sanctions regime.

The lawyers at Tereposky & DeRose have significant experience in the design and implementation of sanctions-related compliance programs, including policies, procedures, employee training, and internal control mechanisms.  They also regularly assist both Canadian and international businesses, financial institutions, and individuals with internal investigations when “red flags” appear, and provide advice on compliance in these areas. Where breaches have occurred, they have worked closely with their clients in making voluntary disclosures and in engaging with the ensuing investigations conducted by the RCMP and Global Affairs Canada.

If you would like to discuss any aspect of the Canadian sanctions regime, contact Vince DeRose or Jennifer Radford at:

 

Vince DeRose

613.903.7015, ext. 102

vderose@tradeisds.com

 

Jennifer Radford

613.903.7015, ext. 193

jradford@tradeisds.com

Canada–US Trade Tensions Continue to Intensify with Imposition of a Second Layer of Lumber Tariffs

On June 26, 2017, the U.S. Department of Commerce (Commerce) announced its affirmative preliminary  determination of dumping in the antidumping duty (AD) investigation of imports of softwood lumber from Canada. The AD investigation has been proceeding alongside a countervailing duty (CVD) investigation. The CVD investigation resulted in an affirmative preliminary determination of subsidization on April 24th and the imposition of preliminary countervailing duties ranging from 3-24% on imports of softwood lumber from Canada. The latest determination imposes an additional layer of antidumping duties ranging from 4.59% to 6.87% on those imports.  Thus, the combined duties applied to imports of Canadian softwood lumber now range from approximately 7% to 31%.

Similar to the CVD investigation, Commerce also made a preliminary finding that “critical circumstances” exist with respect to companies subject to the “all others rate” (i.e., all companies other than Canfor, Resolute, Tolko, and West Fraser, the four mandatory respondents). Consequently, the provisional AD duties will be imposed retroactively on entries of softwood lumber from Canada going back 90 days prior to the publication of the preliminary determination in the Federal Register (i.e., back to the end of March).

Finally, Commerce made a preliminary determination that certain softwood lumber products certified by the Atlantic Lumber Board as being first produced in the Provinces of Newfoundland and Labrador, Nova Scotia, or Prince Edward Island (the Atlantic Provinces) from logs harvested in these three provinces should be excluded from both the AD and CVD investigations.

Additional details on the softwood lumber investigation can be found at:

http://enforcement.trade.gov/download/factsheets/factsheet-canada-softwood-lumber-ad-prelim-062617.pdf

Contact:

Jennifer Radford
613.903.7015, ext. 103
jradford@tradeisds.com

Dan Hohnstein
613.903.7015, ext. 104
dhohnstein@tradeisds.com

The Consent of the Domestic Industry is Not Enough to Secure an Exclusion from Anti-Dumping Protection

The Canadian International Trade Tribunal recently concluded its inquiry to determine whether dumping of certain fabricated structural steel components (“FISC”) by China, Korea and Spain (and the subsidizing of these goods by China) caused injury or was threatening to cause injury to the Canadian domestic market.

In the inquiry, the Tribunal received requests from six parties to exclude products from a potential finding of injury or threat of injury. After concluding that the dumping of FISC from China, Korea and Spain and subsidizing of it by China had caused injury to the domestic market, the Tribunal went on to consider the exclusion requests. In explaining its findings regarding whether to grant the requests, the Tribunal set out the general principles governing such requests.

The Special Import Measures Act (SIMA) implicitly authorizes the Tribunal to grant exclusions from the scope of a finding.  Exclusion requests are granted at the Tribunal’s discretion, when it is satisfied that the exclusions will not cause injury to the domestic industry. The underpinning rationale is this: despite the general conclusion that the dumping and/or subsidizing of the goods has caused injury to the domestic industry, there may be case-specific evidence that imports of particular products captured by the definition of the goods have not caused injury.

In determining whether an exclusion is likely to cause injury to the domestic industry, the Tribunal considers factors such as whether the domestic industry produces, actively supplies or can produce like goods in relation to the subject goods for which the exclusion is requested.

The onus falls on the requester to demonstrate that imports of the specific goods for which the exclusion is requested will not result in injury. The evidentiary burden is on the requestor to file evidence in support of its request. In turn, if no consent is provided by the domestic industry, the domestic industry must file evidence to rebut the evidence filed by the requester.

The Tribunal clarified that it will exercise its discretion to grant product exclusions based on its assessment of the totality of the evidence on the record. Consents to exclusions, or lack of them, are not evidence.  Moreover, consents do not fetter the Tribunal’s discretion in making such determinations.  Notwithstanding that the domestic industry consented, the Tribunal denied the requests that were not also substantiated with sufficient evidence.

The Tribunal’s findings serve as a strong reminder of the necessity of filing evidence to assist the Tribunal in its assessment of exclusion requests. Domestic industry consent is not enough.

Tereposky & DeRose regularly assists domestic industries, manufacturers, exporters, and importers in navigating the investigation and inquiry processes into dumping and subsidizing.  Should you have any questions regarding this inquiry or dumping and subsidizing issues more generally, we would be pleased to assist you.

Contact:

Jennifer Radford
613.903.7015, ext. 103
jradford@tradeisds.com

Dan Hohnstein
613.903.7015, ext. 104
dhohnstein@tradeisds.com

Bill C-30 receives Royal Assent; Federal regulatory changes to follow

On Tuesday, May 16th, Bill C-30 — the proposed legislation to implement the Canada-EU Comprehensive and Economic Trade Agreement (CETA) at the federal level — was granted Royal Assent by the Governor General (see Hansard No. 178 (may 16, 2017) at p. 1725). Bill C-30 is now law in Canada, although its provisions will not enter into force until a day (or days) to be fixed by order of the Governor in Council. The date(s) on which the provisions of Bill C-30 enter into force will coincide with the date on which the CETA enters into provisional application as between Canada and the European Union.

The next step for the federal implementation of the CETA in Canada is the process of making the necessary regulatory changes. This process is expected to proceed immediately.

Ordinarily, proposed regulatory changes are pre-published in the Canada Gazette – Part I for a period of public review. The regular edition of Part I is published every Saturday. It is possible, however, that an “extra edition” of Part I will be published before the end of the week in order to expedite the regulatory process.

Any regulatory changes for which an exemption to the pre-publication period has been granted by the Special Committee of Council will be published as law in the Canada Gazette – Part II, without any period for public review. The regular edition of Part II, which is published every other Wednesday, was published earlier today. It did not include any regulatory changes related to the CETA. As the next regular edition of Part II will be published on May 31st, it is reasonable to expect that an “extra edition” of Part II may be published in the meantime for the purposes of CETA implementation.

Tereposky & DeRose is closely monitoring all aspects of CETA implementation.  Please feel free to contact us if you have any questions relating to the matters raised in this article or the CETA more generally.

 

Contact:

Dan Hohnstein

613.903.7015, ext. 104

dhohnstein@tradeisds.com

Update on Bill C-30 and CETA Implementation in Canada

Late in the afternoon on Wednesday, May 10th, the proposed federal legislation to implement Canada’s rights and commitments under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) — that is, Bill C-30 — passed swiftly through the clause-by-clause consideration conducted by the Senate Committee on Foreign Affairs and International Trade. No proposed amendments were raised by the Committee members during this process and there was no substantive debate on the provisions of the Bill. However, a number of comments and concerns were voiced by the Committee Chair, Senator Andreychuk, and others during the hearing. These comments and concerns had less to do with the substantive content of Bill C-30 (or the CETA) than with the Canadian Government’s own internal processes. There were strong calls for increased transparency, for example, including in the context of changes to Canada’s regulatory regimes to implement the CETA. The content of the hearing can be reviewed here: https://sencanada.ca/en/Committees/aefa/MeetingSchedule/42-1?mode=PAST.

In its report to the Senate, the Committee has appended nine paragraphs setting forth “certain observations”. These observations serve to identify, in politically neutral language, criticisms and concerns with respect to the Canadian Government’s processes relating to the negotiation and implementation of the CETA in particular and of Canada’s free trade agreements (FTAs) more generally.

For example, paragraph 1 calls for the development of a publicly accessible CETA implementation strategy, and paragraph 2 plainly states that transparency regarding the government’s trade policy “needs to be enhanced”, e.g., through “[m]ore inclusive and extensive consultations before, during and after negotiations”; paragraph 3 calls for transparent consultations with stakeholders affected by the regulatory changes required to implement an agreement, as well as the pre-publication of such changes in the Canada Gazette for public review; paragraph 4 criticizes the Canadian government’s use of non-disclosure agreements in exclusive consultations with limited stakeholders, particularly in relation to the implementation of provisions affecting intellectual property rights; paragraph 7 recommends that the Government of Canada should take appropriate action to ensure that Canadian firms are not placed at a disadvantage as a result of CETA implementation; and paragraph 8 recommends that the Government of Canada should implement an automatic reinstitution of visa requirements for citizens of Bulgaria and Romania in the event that the number of violations of Canada’s immigration rules by individuals from these countries exceeds a specified threshold. The Report of the Senate Committee can be found online here: https://sencanada.ca/en/committees/report/40506/42-1.

The following day, Thursday, May 11th, the Senate wasted no time in completing the Third Reading of Bill C-30, passing the Bill with no amendments. It is expected that Bill C-30 will be granted Royal Assent by early next week.

Following Royal Assent, the Government of Canada will proceed immediately with the process of modifying Canada’s regulatory regimes to implement the CETA at the federal level. This will involve both the creation of new regulations and the amendment of existing regulations. While it is expected that most regulatory changes will be pre-published in Part I of the Canada Gazette for a short period of public review, some changes could be published as law in Part II of the Canada Gazette with no opportunity for review or comment by affected stakeholders. In order to expedite the regulatory process, the Government of Canada may pre-publish the proposed regulatory changes early next week in an “extra edition” of Part I of the Canada Gazette rather than in the regular issue on Saturday, May 20th.

Once the foregoing steps have been completed, Canada will be in a position to exchange notices with the European Union under CETA Article 30.7 (Final provisions – Entry into force and provisional application). As the European Union will be entering into provisional application of the CETA pending the implementation required in each of its Member States, it is reasonable to expect that Canada will follow the same approach, considering the implementation that will be required in each of the ten provinces and three territories. In this respect, sub-paragraph 30.7(3)(a) provides that the “Parties may provisionally apply this Agreement from the first day of the month following the date on which the Parties have notified each other that their respective internal requirements and procedures necessary for the provisional application of this Agreement have been completed or on such other date as the Parties may agree” (underline emphasis added).

While it might be technically possible for provisional application of the CETA to commence as early as June, a start date of July 1st seems more reasonable, providing a more practicable lead time for completion of the necessary prerequisite steps.

Tereposky & DeRose is closely monitoring all aspects of CETA implementation.  Please feel free to contact us if you have any questions relating to the matters raised in this article or the CETA more generally.

Contact:

Dan Hohnstein

613.903.7015, ext. 104

dhohnstein@tradeisds.com

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

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

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

Separately, the petition alleges that:

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

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

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

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

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

Contact:

 Greg Tereposky

613.903.7015, ext. 101

gtereposky@tradeisds.com

 Vincent DeRose

613.903.7015, ext. 102

vderose@tradeisds.com

 

 

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

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

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

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

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

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

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

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

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

Contact:

 Jennifer Radford

613.903.7015, ext. 103

jradford@tradeisds.com

Dan Hohnstein

613.903.7015, ext. 104

dhohnstein@tradeisds.com

 

Canada–US Trade Tensions Intensify with Imposition of Lumber Tariffs

US Imposition of Preliminary Countervailing Duties

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

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

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

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

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

 Preliminary Finding of Critical Circumstances

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

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

Navigating the Softwood Lumber Dispute Going Forward

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

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

Contact:

Jennifer Radford

613.903.7015, ext. 103

jradford@tradeisds.com

 

Dan Hohnstein

613.903.7015, ext. 104

dhohnstein@tradeisds.com

 

The Launch of Tereposky & DeRose LLP

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