Canada Closes the Gate on Non-Market Economies (NMEs) and Circumvention of AD and CV Duties
[Updated 26 April 2018]
The Department of Finance has published its proposed Regulations Amending the Special Import Measures Regulations and the Canadian International Trade Tribunal Regulations in the Canada Gazette (available online here). Interested persons have 15 days from March 31st to provide comments on the amendments, which are expected to come into force late April or early May. These new measures include alternative methodologies to address price distortions (e.g., non-market economies (NMEs)), the creation of new anti-circumvention investigations, the adoption of “scope” proceedings to replace previous informal advice provided by the Canada Border Services Agency (CBSA), and union participation in trade remedy proceedings.
Changes to Canadian Law
Following consultations in the summer of 2016 during which the Government of Canada sought stakeholder views on how to improve the effectiveness of the Canadian trade remedy system, new measures were announced in the 2017 Budget. To implement these measures, legislative amendments to the Special Import Measures Act (SIMA) were made through the Budget Implementation Act, 2017, NO. 1, which received royal assent on June 22, 2017. However, for these legislative changes to become operational, amendments to the Special Import Measures Regulations (SIMR) and the Canadian International Trade Tribunal Regulations (CITT Regulations) are required. The proposed changes concern these amendments.
On 26 April 2017 the CBSA announced these changes and provided some elaboration on how it will implement them. See: http://www.cbsa.gc.ca/sima-lmsi/sapt-pesp-eng.html
NMEs and Other Distortions Affecting Exporters
The previous June 2017 changes to the SIMA empowered the CBSA to reject sales of a “particular exporter” or of a “particular country” if a “particular market situation exists which does not permit a proper comparison with the sale of the goods to the importer in Canada”. A “particular market situation” may exist where there is government intervention in the market that distorts prices so that they are artificially low, such that they are not appropriate to use for the price comparison. In such circumstances, the CBSA can use the alternative constructed normal value methodology (i.e., costs plus profit). It is now apparent how Canada intends to implement this change to counter NMEs.
The amendments to the SIMR focus on the “profit” element of the constructed normal value. They will allow the CBSA to disregard sales in the exporter’s market where a particular market situation exists in determining the “reasonable amount of profit” when constructing the normal value. Focusing on “profit” rather than on “cost of production” might be aimed at avoiding the requirement to use the cost of production “in the country of origin” that is specified in Article 2.2 of the WTO Anti-Dumping Agreement and that prevents investigating authorities from using costs from surrogate third countries. The phrase “reasonable amount for… profit” in Article 2.2 is not explicitly qualified by that language.
The SIMR will be amended to prescribe the activities that constitute circumvention (e.g., assembly or completion of goods in Canada or a third country using parts or components from a subject country, or the slight modification of goods), in addition to the factors that the CBSA could consider in making its determination. The CITT Regulations will also be amended to allow one CITT Member (rather than three) to amend the order that originally imposed the duties so that it will cover the goods subject to the CBSA’s anti-circumvention decision.
The SIMR will be amended to prescribe the information that applicants will be required to include in an application for a scope ruling and lay out the procedure applicable to such proceedings, including the circumstances under which the CBSA could reject an application for a scope ruling or extend the period for making a scope ruling. The CITT Regulations will be amended to provide for an appeal mechanism of scope rulings made by the CBSA and the procedure applicable to such proceedings. The CITT Regulations will also be amended to allow one CITT Member (rather than three) to hear appeals of the CBSA’s circumvention determinations.
In addition to adding unions to the list of parties that may make representations to the CITT in public interest inquiries, the amendments to the SIMR will also require that domestic producers include a list of relevant unions in dumping and subsidizing complaints. The CITT Regulations will be amended to add unions to the definition of parties that may make representations.
Tereposky & DeRose regularly provides advice on Canadian anti-dumping and countervailing duty matters. Should you have any questions regarding this matter or anti-dumping and countervailing duty issues more generally, we are at your disposal.