Canada is consulting on changes to the trade remedies regime to help Canadian producers

Source: Canada US
Link: Canada is consulting on changes to the trade remedies regime to help Canadian producers

On July 19, 2019, Finance Canada announced public consultations regarding proposed changes to the Special Import Measures Regulations and issued a backgrounder.  The proposed changes are in response to submissions by the Canadian steel industry earlier in 2019.  The time period for consultations is very short – submissions are due no later than August 5, 2019.

The proposed changes to the Special Import Measures Regulations were published in the Canada Gazette, Part I on July 20, 2019.  The proposed changes fall into three categories:

1. Establishing an alternative method to calculate dumping margins if domestic prices in the exporting country do not allow for a proper comparison (i.e. they are distorted). Finance Canada discusses the scenario that the producer of the goods sent to Canada has purchased inputs for these goods from an associated party at a price below cost or below a representative benchmark or because of the presence of a particular market situation (e.g. where government intervention results in price distortions, or when factors such as significant macroeconomic volatility affect the prices and input costs in the market). If the proposed amendments are implemented, the CBSA may calculate an alternative price for the goods through a constructed costs methodology, where the price of the goods is determined as the cost of production in the country of origin, plus a reasonable amount for administrative, selling and general costs, as well as profits. The proposed amendments to the SIMR would provide a method for the CBSA to determine an appropriate amount for the cost of production in the two instances below.

2. Changes to calculation of costs of production when there are transactions between related parties (e.g. a foreign producer is integrated any buys inputs from a related party).  The proposed amendments as drafted provide the CBSA with flexibility in calculating the costs of production when inputs are supplied by an associated supplier (e.g. a subsidiary or affiliated company). The proposed amendment allows the CBSA to use the highest of the transfer price between parties, the actual costs to the supplier, or a reasonable benchmark determined in the country of export if such information is available.

3. Changes to the determination of the costs of production where a particular market situation has been found. The propoded amendments set out a hierarchy of alternatives to be used by the CBSA to determine the costs of inputs, depending on the information available and whether the alternative would allow for such a proper comparison. For instance, if such information is available, the CBSA could use the price of a similar input produced in the country of export and sold to the exporter or other producers in the country. Other alternatives include referring to published prices in trade publications, with price adjustments to be made as necessary to reflect the actual cost of the input in the country of export.

All of these proposed changes are intended to increase normal values in order to prevent foreign goods from entering Canada.

The relevant proposed amendments to the Special Import Measures Regulations are as follows:

3 The portion of paragraph 11(1)(a) of the Regulations before subparagraph (i) is replaced by the following:

(a) subject to sections 11.2 and 12 of these Regulations, the expression cost of production, in relation to any goods, means the aggregate of all costs that are

4 The portion of paragraph 11.1(a) of the Regulations before subparagraph (i) is replaced by the following:

(a) the cost of production, in relation to any goods, shall, subject to subsection 11.2(1) and section 12, be calculated by aggregating all costs that are

5 The Regulations are amended by adding the following after section 11.1:

11.2 (1) For the purposes of subparagraphs 11(1)(a)(i) and 11.1(a)(i), if an input used in the production of the goods is acquired by the exporter or producer from an associated person and is a significant factor in the production of the goods, the cost of that input in the country of export is considered to be the greater of the following amounts:

(a) the price paid in respect of that input by the exporter or producer to the associated person;

(b) the cost incurred by the associated person in the production of that input, including the administrative, selling and all other costs with respect to that input; and

(c) the price in the country of export of the same or substantially the same inputs, if sufficient information is available to enable the price to be determined on the basis of

(i) the selling prices of those inputs in the country of export, in the same or substantially the same quantities, between parties who are not associated persons; or

(ii) the published prices of those inputs in the country of export.

(2) For the purposes of subparagraph 11(1)(a)(i), if the President is of the opinion that, under paragraph 16(2)(c) of the Act, a particular market situation exists which does not permit a proper comparison of the sale of like goods with the sale of the goods to the importer in Canada, such that the acquisition cost of an input used in the production of the goods does not reasonably reflect the actual cost of that input, the cost of that input in the country of export shall be considered to be the first of the following amounts that reasonably reflect the actual cost of the input so as to permit a proper comparison of the sale of like goods with the sale of the goods to the importer in Canada:

(a) the price of the same or substantially the same inputs that are produced in the country of export and sold to the exporter or to other producers in the country of export;

(b) the price of the same or substantially the same inputs that are produced in the country of export and sold from the country of export to a third country;

(c) the price of the same or substantially the same inputs determined on the basis of the published prices of those inputs in the country of export;

(d) the price of the same or substantially the same inputs that are produced in a third country and sold to the exporter or to other producers in the country of export, adjusted to reflect the differences relating to price comparability between the third country and the country of export; or

(e) the price of the same or substantially the same inputs determined on the basis of the published prices of those inputs outside the country of export, adjusted to reflect the differences relating to price comparability with the country of export.

If you have concerns that the proposed amendments are not consistent with Canada’s WTO or free trade agreement obligations, this is the time to speak up. The proposed amendments to the Special Import Measures Regulations will apply to any product and not just steel.  The proposed amendments can be used by the CBSA during a reinvestigation of normal values, a normal value review or an appeal.  In other words, the CBSA can abandon favourable methodologies previously applied to goods that are subject to an existing antidumping order. As a result, the proposed amendments will affect companies who are currently selling to Canada under normal values.

If you have any questions, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  we have posted other articles about Canada’s trade remedies laws on the LexSage website.