Backgrounder – Proposed Amendments to Canada’s Trade Remedy Regulations
On April 26, 2019, the Government of Canada announced a consultation process with industry and workers to determine ways to improve Canada’s trade remedy system and steel import monitoring regime. In addition to actions to further strengthen the trade remedy system and the verification of import data, the Government is also consulting on proposed regulatory amendments to provide additional tools to the Canada Border Services Agency (CBSA) to address price distortions more effectively when calculating margins of dumping.
Canada’s trade remedy system
Under World Trade Organization rules, when domestic producers are injured by imports that are dumped (i.e. exported at a price lower than prices in the exporter’s home market or at a price that is below costs) or that have benefited from certain types of government subsidies, anti-dumping or countervailing duties may be imposed to remedy the injury.
In Canada, domestic producers may seek to have anti-dumping and countervailing duties imposed pursuant to the Special Import Measures Act following investigations by the Canada Border Services Agency, to determine if imports were dumped or subsidized, and the Canadian International Trade Tribunal, to determine whether such imports injured or threaten to injure Canadian producers. These investigations are conducted in an evidence-based, independent, impartial and transparent manner.
In anti-dumping investigations, dumping margins are normally calculated by comparing the prices of the goods when sold in the domestic market of the exporting country with the prices of goods when sold for export to Canada. However, alternative methodologies may be appropriate for calculating dumping margins if domestic prices in the exporting country do not allow for a proper comparison (i.e., they are distorted). This may arise because a foreign producer has purchased inputs for the production of the 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.
In such cases, 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 Special Import Measures Regulations would provide a method for the CBSA to determine an appropriate amount for the cost of production in the presence of transactions between associated parties or of a particular market situation.
Proposed regulatory amendments
Proposed changes to the Special Import Measures Regulations will be published in the Canada Gazette, Part I, on July 20, 2019. Canadians have until August 5, 2019 to provide feedback on the proposed changes. These proposed changes are intended to address two broad situations:
Transactions between associated parties
The proposed amendments would 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 would specify that the CBSA may use, for this cost, 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.
Particular market situation
A particular market situation may be found to exist in cases where, for instance, government intervention in the country of export results in price distortions, or when factors such as significant macroeconomic volatility affect the prices and input costs in the market. The CBSA already has the ability to disregard sales in the domestic market of the exporting country if they are affected by a particular market situation. In those cases, the CBSA may use alternative methodologies, such as constructed costs, when calculating margins of dumping.
The proposed amendments would further specify that in determining the costs of production where a particular market situation has been found, alternative options can be used to determine the cost of inputs, if they do not allow for a proper comparison between the sale of goods in the country of export and the sale of goods exported to Canada. The amendments would provide a hierarchy of alternatives to be used to determine the costs of inputs, depending on the information available and whether the alternative would allow for such a proper comparison.