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.