Canada should consider the Economic Impact of Imposing AD/CV Duties on Imports and should start with OCTG

Source: Trade Law
Link: Canada should consider the Economic Impact of Imposing AD/CV Duties on Imports and should start with OCTG

Canadian practice has been to consider Anti-dumping/Countervailing measures (AD/CV) measures exclusively from the perspective of the domestic industry that filed the dumping complaint and ensure that any injury to this industry is offset using AD/CV duties.  However, this approach does not necessarily take the best interests of the Canadian economy as a whole into consideration.  That practice should stop and Oil Country Tubular Goods (OCTG) is the product that calls out for this change.

The Canadian International Trade Tribunal (CITT) recently started two Expiry Reviews into AD/CV Orders against OCTG.[1]  The purpose of these Reviews is to determine whether the existing Orders should be allowed to expire or be extended for a further five years.  If extended, OCTG imported from China, Chinese Taipei, India, Indonesia, the Philippines, Korea, Thailand, Turkey, Ukraine and Vietnam will continue to be subject to AD/CV duties for a further five years, increasing their price in Canada.

The Canadian AD/CV system favours domestic producers because the only question before the CITT in an AD/CV Inquiry is injury to the domestic industry.  In an AD/CV Inquiry, the Canada Border Services Agency (CBSA) determines whether the imported goods that are the subject of an AD/CV complaint are dumped and/or subsidized and determines the margin of dumping and subsidization.  The CITT separately determines whether the imported goods have caused or threaten to cause injury to the domestic producers, but the CITT does not determine the level AD/CV duties required to offset that injury or threat of injury.  Instead, AD/CV duties are applied to imported goods based on the rates established by the CBSA.  The same thing happens in Expiry Reviews.  The amount of AD/CV duties required to offset the injury, or whether it is in Canada’s best interests to impose duties in any amount is not considered.

Since AD/CV duties are set based on the margins established by the CBSA, it is possible if not likely that the AD/CV duties applied to the imported goods will exceed the amounts actually required to offset the injury or threat of injury found.  In this case, the domestic producers will have more protection than required while Canadian stakeholders who purchase and use the imported goods will face unnecessarily high costs.

The CITT does have a limited the right to consider whether it is in Canada’s best interests to impose AD/CV duties, but this only arises if a request for a Public Interest Inquiry is filed within 45 days of the initial AD/CV Order being issued.  Not only is this a very short period for requesting this inquiry, the right to seek a Public Interest Inquiry does not apply to Expiry Reviews.  Consequently, the broader public interest in imposing AD/CV duties is usually not taken into account.

Canada’s approach to AD/CV measure arguably violates WTO obligations.  The WTO provides that an anti-dumping measure “shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury.”[2]  Thus Canada should limit AD/CV duties to the amount actually required to offset injury rather than at an amount that may provide excess protection.

OCTG are specialized and expensive steel pipes used as drill pipe and casing in oil and gas exploration and production.  They are used by drilling companies working in oil and gas in Western Canada.  The AD/CV duties imposed on these imports increases their cost to these Canadian end-users.   This begs the question whether it is in Canada’s economic best interests to increase the cost of OCTG when it is obvious that Canada’s oil and gas sector in Alberta and Saskatchewan is facing tough times.  The answer seems obvious; the Government of Canada should take a hard look at whether it is in Canada’s best interests to continue AD/CV duties on imported OCTG in any amount.

More importantly, the decision to impose AD/CV duties on any imported goods should not be made without considering the impact of these duties on the Canadian economy as a whole because, from time to time economic conditions may mitigate against imposing AD/CV duties because of the greater negative impact on the Canadian economy.  There is precedent for the Government directing the CITT to consider the broader impact of AD/CV duties.

In 2016 the Government of Canada relied on Section 18 of the Canadian International Trade Tribunal Act to direct the CITT to conduct an economic inquiry into imports of Gypsum Board from the U.S. for sale into the Western Canadian Market.[3]  The CITT conducted this inquiry simultaneously with its Injury Inquiry into imports of U.S. Gypsum Board.[4]  In its .Report to the Governor in Council at the conclusion of its inquiry, the CITT recommended that final duties for cooperating exporters be no more than 43% of the export price;[5] a rate far below the 94.6% to 211.0% dumping margins found for cooperating U.S. exporters.[6]   Consequently, the CITT recommended a rate which it considered sufficient to offset injury which did not impose unnecessary additional costs on Canadian end users to the benefit of the economy as a whole.

Canada should consider the broader impact of AD/CV duties to determine the amount of duties that should be imposed in the circumstances.  Gypsum Board is a precedent for considering the broader economic impact and should be followed in OCTG.  However; this precedent should be applied in all AD/CV inquiries because of the imposition of AD/CV duties on any imports may cause more harm than good.  Until we recognize this simple truth Canada’s AD/CV system will not work in Canada’s best interests.  Rather, AD/CV duties will likely continue to give Canada’s domestic producers excess protection while harming Canadian end-users by unnecessarily increasing their costs.

Gordon LaFortune
Woods, LaFortune LLP

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[1]   On December 17, 2019, the CITT issued its Notice of Expiry of Order in LE-2019-004 concerning its AD/CV Order against imports of OCTG from China.   On January 3, 2020, the CITT issued its Notice of Expiry of Order in LE-2019-005 concerning its AD/CV Order against imports of OCTG from Chinese Taipei, India, Indonesia, the Philippines, Korea, Thailand, Turkey, Ukraine and Vietnam.

[2]  WTO Anti-dumping Agreement, Article 11.1

[3]  Gypsum Board, CITT File Number, Reference No. GC-2016-001.

[4]  Gypsum Board, CITT File Number, Inquiry No. NQ-2016-002

[5]  Gypsum Board, CITT File Number, Reference No. GC-2016-001, para 162.

[6]  Certain Gypsum Board, Notice of Final Determination, CBSA File Number GB 2016 N