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Canada Should Revisit Safeguard Measures on Stainless Steel Wire

Source: Trade Law
Link: Canada Should Revisit Safeguard Measures on Stainless Steel Wire

The Minister of Finance should reconsider the decision to impose safeguard measures on imports of stainless steel wire because the recent agreement between Canada and the U.S. to remove their respective duties on each other’s steel, calls into question the Canadian International Trade Tribunal’s (CITT) threat of injury finding against stainless steel wire imports which underpins the Minister’s decision.

On May 10, 2019, the Minister imposed safeguard measures on imports of stainless steel wire from almost all sources.  The safeguard measures took the form of a tariff rate quota that set a limited volume of imported stainless steel wire that could enter Canada duty-free and a surtax on stainless steel wire entering Canada above that amount.  The Minister’s decision was based on the CITT’s finding that stainless steel wire imports threatened to cause serious injury to Canada’s domestic stainless steel wire producer.

The Minister has the discretion to impose safeguard measures, but only if the CITT makes an injury or threat of injury finding and recommends that safeguard measures be taken at the conclusion of an investigation.  Without the CITT’s decision, the Minister cannot act.  Therefore, the Minister’s decision to impose safeguard measures is based on a CITT injury finding.

In this case, the CITT found that imports of stainless steel wire threatened to cause injury to Canada’s domestic stainless steel wire producers; not that the domestic steel producers had actually been injured by imports.  This means that the CITT found that the evidence pointed to an imminent and foreseeable change in circumstances that would result in serious injury to the domestic producers unless safeguard measures were put in place.  In short, the CITT concluded that a change in circumstances making things worse for the domestic producer was likely.  However, the Canada – U.S. decision to eliminate their respective duties is the only significant change since the CITT issued its threat of injury finding and that change arguably benefits the Canadian producer.

The decision to eliminate the U.S. 232 duties and Canada’s retaliatory duties played role in the CITT’s decision in the Steel Safeguard Case (Certain Steel Goods, CITT File Nbr GC-2018-001, April 3, 2019).  At page 116, the CITT found that U.S. imports had accounted for a significant share of the Canadian market (approximately 35%) from 2015 to 2017), but that the U.S. and Canadian duties changed these trade flows.  As a result of the duties, Canada’s domestic producer was less able to ship stainless steel wire to the U.S. and U.S. producers were less inclined to ship to Canada because of the improved market conditions in the U.S. caused by the Section 232 duties.  At page 118, the CITT noted that Canada’s producer lost export sales in the first half of 2018 compared to the second half of 2017 and found that the loss of potential export volumes would have a negative effect on the producer.

By eliminating their retaliatory duties, Canada and the U.S. have returned to the status quo of duty-free movement of stainless steel across the Canada – U.S. border.  Consequently, the Canadian producer will have access duty-free access to its U.S. accounts and, more importantly, will effectively have preferential access because the U.S. 232 duties will continue to apply to stainless steel wire from almost all other countries.  The return of the ability to freely export to the U.S. is an obvious benefit to the Canadian producer and could be enough to eliminate the threat of injury found by the CITT.

The CITT based its threat of injury finding on a consideration of all the evidence, and not just the impact of the U.S. Section 232 duties and Canada’s retaliatory duties.  Thus, it is not absolutely clear that removing the U.S. Section 232 duties and Canada’s retaliatory duties will eliminate the threat of serious injury, but the decision to remove these duties raises serious questions concerning the CITT’s finding and, in turn, raises questions concerning the Minister’s decision to impose safeguard measures on the basis of that finding.

Canada does not have an absolute right to impose and maintain safeguard measures.  Article 5(1) of the WTO Agreement on Safeguards provides that a Member shall only apply a safeguard measure to the extent necessary to prevent or remedy serious injury.  That is, Canada may not maintain safeguard measures if they are no longer necessary to prevent or remedy serious injury.  Consequently, if the Canada – U.S. decision to remove their respective duties on each other’s steel eliminates the threat of serious injury found by the CITT, Canada has no right to maintain the safeguard measures against stainless steel wire.

The CITT does not have the authority to review and amend its threat of injury finding on stainless steel wire.  However, the Minister of Finance can amend or revoke the safeguard measures and can direct the CITT to review its finding.  Therefore, to ensure that Canada meets its international trade obligations, and avoid any unnecessary costs to the Canadian economy resulting from unnecessary protection extended to the Canadian producer, the Minister should either revoke or reduce the safeguard measures imposed on imports of stainless steel wire or he should direct the CITT to review its threat of injury finding in light of the apparently improved market conditions resulting from the decision to remove the Canadian and U.S. duties on steel.

– Gordon LaFortune

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