6 Sep 2018

The CETA does not exclude EU steel products from Canadian global safeguard measures

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

Canada’s impending global safeguards action

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

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

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

Exclusions for certain countries under regional free trade agreements

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

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

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

No safeguard exclusions under the CETA for EU-origin products

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

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

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

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

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

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com