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McCARTHY TÉTRAULT

McCARTHY TÉTRAULT. Canadian Anti-dumping and Countervail: How Chinese Companies Can Protect Themselves Simon V. Potter spotter@mccarthy.ca John Greenwald john.greenwald@wilmerhale.com. China-Canada Trade.

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McCARTHY TÉTRAULT

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  1. McCARTHYTÉTRAULT Canadian Anti-dumping and Countervail: How Chinese Companies Can Protect Themselves Simon V. Potter spotter@mccarthy.ca John Greenwald john.greenwald@wilmerhale.com

  2. China-Canada Trade Source: Roy, Francine, “Canada’s Trade with China” (June 2004) Statistics Canada No. 11-624-MIE No. 007, p. 5.

  3. Future Issues • Increased market penetration by China leading to increased concern by domestic producers • Likely increased use of anti-dumping and countervailing duties (so far only 2 Canadian CVD cases against China) • Possible increased use of safeguards • Increased use by China of WTO mechanisms • Increased exposure of China to WTO complaints

  4. Canadian Trade Remedies and Procedures

  5. Overview of Trade Remedies • Anti-dumping • Anti-subsidy (countervail) • Safeguards

  6. Key Concepts in Anti-Dumping and Countervail • Occurrence of dumping/subsidization • Injury to Canadian industry • Dumping/subsidization has caused or threatens to cause material injury to a domestic industry, or material retardation of the establishment of a domestic industry

  7. Definition of Dumping • Goods are “dumped” when they have been sold into Canada at prices below the exporter’s home market selling price or below the exporter’s cost of production plus an amount for profit[s.2 (1) Special Import Measures Act (SIMA)] • Apply duty equal to margin of dumping

  8. Definition of Subsidization • “[A] financial contribution by a government of a country other than Canada . . . that confers a benefit to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods”, including domestic price supports [s. 2(1) SIMA] • Financial contribution includes direct transfer of funds, foregoing of amounts due to government, provision (by government or on its direction) of goods and services other than general infrastructure [s. 2(1.6) SIMA, mirror of Article 1.1 of SCM Agreement: both lists are exhaustive] • Excludes exemptions from or remissions of taxes and duties applicable to goods sold domestically • Benefit (discussed later) to recipient is measure of subsidy [mirror of Article 14 of SCM] • Apply duty equal to, no greater than, margin of subsidization [s. 7(2) SIMA]

  9. Types of Subsidies • There are 3 types of subsidies under the Special Import Measures Act: • Non-Actionable • Non-specific subsidy (prohibited subsidies are deemed specific) • Subsidy related to research and development, disadvantaged regions or environmental standards [s. 2(1) SIMA] • Pursuant to Article 31 of the SCM Agreement, Part IV, dealing with non-actionable subsidies related to research and development, environmental protection and regional development, expired on December 31, 1999. • The Non-actionable subsidies clause in s. 2(1) SIMA Act has been suspended by an Order issued under s.98 of SIMA. • Conclusion: SIMA no longer has category of non-actionable subsidies, but Canada is open to discussing revival of this category. • Actionable • Specific subsidy (complainant must prove specificity) • Prohibited • An export subsidy, or • A subsidy or portion of a subsidy that is contingent, in whole or in part, on the use of goods produced in, or originating from, that country of export [s. 2(1) SIMA]

  10. Applicable Laws and Regulations • Canada was the first country with an anti-dumping regime (since 1904) • Current Legislation: • Special Import Measures Act, R.S. 1985, c. S-15 (SIMA) • Special Import Measures Regulations, SOR/84-927

  11. Agency Roles and Coordination • Canada Border Services Agency (CBSA) http://www.cbsa-asfc.gc.ca/menu-e.html • Responsible for dumping/subsidization investigation • Canadian International Trade Tribunal (CITT) http://www.citt.gc.ca • Responsible for inquiry into injury and causation • Investigation and inquiry process and timeline charts (hand-out)

  12. Process for AD and CVD • Key Stages: • Properly documented complaint • CBSA initiation of investigation • CITT preliminary decision of injury • CBSA preliminary dumping/subsidy determination • CBSA final dumping/subsidy determination • CITT final decision of injury

  13. Initiating the Investigation • CBSA receives a written complaint from the domestic industry (or initiate on their own or on advice from the CITT) • CBSA must be of the opinion that there is evidence that: • the goods have been dumped or subsidized; and • discloses a reasonable indication that the dumping or subsidizing has caused injury or retardation or is threatening to cause injury [s. 31.1 SIMA]

  14. Standing of the Complainant • Possible complainants • Canadian producer of like goods that are identical or similar to the competing imports • Association of such producers on behalf of its members • Support required from producers representing at least 25% of Canadian production of like goods • Support for complaint must exceed opposition within the Canadian industry

  15. Content of the Complaint • Information on: • Canadian-produced goods • Competing imports • Domestic industry • Conditions in the Canadian market • Evidence of: • Dumping or subsidizing of the imported goods • Resulting injury to Canadian industry

  16. Initiation of AD/CVD Investigation • CBSA decision on whether or not to initiate is based on: • information contained in the complaint • CBSA's own information • submissions from other parties

  17. The Investigation by the CBSA • In anti-dumping investigations, questionnaires are issued to: • identified exporters/producers from country of export, and • identified Canadian importers • In subsidy investigations, questionnaires are issued to: • identified exporters/producers from country of export, and • the Government of country of export • Meetings/verification visits may take place during the investigation

  18. The Investigation: Confidential Information • A party wishing to keep information or evidence confidential must provide (i) a statement designating the information as confidential, and (ii) a non-confidential edited version of the information • SIMA provides that information designated as confidential may be disclosed to parties’ counsel • Counsel must sign a confidentiality undertaking • CBSA may refuse to disclose where it might result in material harm to the business or affairs of the party designating the information as confidential

  19. CBSA Investigation: Possible Results • Termination of investigation • If margin of dumping or amount of subsidy is “insignificant” (s.35(1)(a)(ii) and s.2(1) SIMA) or • If actual and potential volume of dumped or subsidized goods is “negligible” (s.35(1)(a)(iii) and s.2(i) SIMA) or • If CITT concludes that evidence does not disclose a reasonable indication that the dumping or subsidization has caused or threatens injury • Preliminary determination of dumping/subsidization and application of provisional duties on imports of subject goods (and final CITT injury inquiry begins)

  20. The Dumping Calculation • Normal value • Export price • Margin of dumping • Special rules • Sales between related parties • Exporters from non-market economy (normal value) Key issue for China

  21. Dumping: Presumption of Market Economy • Canada used to treat China as a non-market economy in anti-dumping investigations • Between 1997 and 2003, China treated as a non-market economy in 9 of 10 anti-dumping cases • SIMA provides that Chinese industries will be considered to be operating under non-market conditions where: (i) domestic prices are substantially determined by the government and (ii) there is sufficient reason to believe that prices are not substantially the same as they would be if they were determined in a competitive market [s.20 SIMA]

  22. Dumping: Presumption of Market Economy (continued) • CBSA policy (June 2004): • Canada now presumes that the Chinese exporter is operating in a market economy unless evidence suggests otherwise • If Canadian complainant proves non-market conditions, normal values will be based on: • Price of like good sold by producers in a surrogate country, adjusted for price comparability; • Cost of producing and selling like goods plus a reasonable amount for profit in a surrogate country; or • Selling price in Canada of like goods imported from a surrogate country

  23. Dumping: Market Economy Case Law • Xanthates from the People’s Republic of China, CBSA Final Determination (February 3, 2003) • CBSA concluded that it was not provided with sufficient information to determine whether or not China’s Xanthates industry operated under market conditions, but • CBSA determined normal values on the basis of Ministerial Specification (in this case, based on cost of production and profit estimates provided by complainant)

  24. Dumping: Market Economy Case Law (continued) • Automotive Laminated Windshields from the People’s Republic of China, CBSA Final Determination (July 31, 2002) • CBSA determined that China’s automotive replacement windshield industry operates under market conditions • CBSA determined normal values either on the basis of selling prices in China or on the basis of the costs of producing and selling the goods in China, plus a reasonable amount for profit

  25. Dumping: Market Economy Case Law (continued) • Wood Venetian Blinds and Slats, CBSA Final Determination (May 17, 2004) • CBSA was not provided with any complete submissions from Chinese exporters • CBSA determined normal values on the basis of Ministerial Specification

  26. Dumping: Market Economy Case Law (continued) • Certain Fuel Tanks from the People’s Republic of China, CBSA Final Determination (August 3, 2004) • CBSA rejected allegations that the Chinese fuel tank industry was operating under non-market conditions • CBSA determined final normal values on the basis of the Chinese costs of producing and selling the goods, plus a reasonable amount for profit

  27. Dumping: Market Economy Case Law (continued) • Outdoor Barbecues, CBSA Termination of Investigation (December 3, 2004) • CBSA concluded that it was not able to determine an amount for profits for co-operative exporters as there was no publicly available information regarding the production and sale of barbecues • CBSA determined normal values on the basis of Ministerial Specifications (in this case, on the basis of the cost of production and selling the goods and a reasonable amount for profits)

  28. Dumping: Market Economy Case Law (continued) • Carbon Steel and Stainless Steel Fasteners, CBSA Preliminary Determination (September 10, 2004) • For some exporters, CBSA calculated preliminary normal values on the basis of the weighted average prices for sales to unrelated customers in China • For other exporters, CBSA determined preliminary normal values on the basis of the cost of producing and selling the goods in China plus a reasonable amount for profit

  29. The Subsidy Calculation –Step 1: Does a subsidy exist? • In determining whether a program has resulted in a subsidy under SIMA, the Canadian government considers whether: • there has been a financial contribution by a government of a country other than Canada; s. 2(1) SIMA] and • there was a benefit conferred to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. [s. 2(1) SIMA] • If a subsidy is found to exist, it may be subject to countervailing duties if it is specific (prohibited subsidies are deemed specific: s. 2(7.2)(b) SIMA)

  30. The Subsidy Calculation –Step 1: Does a subsidy exist? • (i) Financial Contribution: • a financial contribution exists in 4 cases where: • a) practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities; • b) amounts that would otherwise be owing and due to the government are exempted or deducted; or amounts that are owing and due to the government are forgiven or not collected; • c) the government provides goods or services, other than general governmental infrastructure, or purchases goods; or • d) the government permits or directs a non-governmental body to do anything referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it [s. 2(1.6) of SIMA and Part II of SIMR]

  31. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: • Each type of specific subsidy, as classified under the SIMA regulations (SIMR), has its own formula for calculating benefits, with benchmark being fair market value or prevailing market conditions in the country of subsidization [mirror of Article 14(d) of SCM Agreement]

  32. The Subsidy Calculation –Step 2: How to calculate a subsidy? • SIMR provides specific rules for benefit calculation in cases of: a. Grantsb. Loans at preferential ratesc. Loan guaranteesd. Income tax credits, refunds and exemptionse. Deferral of income taxesf. Excessive relief of duties and taxesg. Acquisition of sharesh. Purchase of goods by governmenti. Provision of goods and Services by Government

  33. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (a) For a subsidy classified as a Grant, or a transfer of liabilities or a forgiveness of debt: Benefit = grant amount/volume of subsidized goods [s. 27 of SIMA regulations] • Re: the Subsidizing of Certain Stainless Steel Wire Originating in or Exported from India -4258-123 AD/1292, 4218-14 CV/98, July 15, 2004 - CBSA final determination classified subsidy program asa grant and used grant formula under s. 27(1.2) of SIMR

  34. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (b) For a subsidy classified as a Loan at a Preferential rate,CBSA will inquire as to comparable commercial loan rates and as to the total volume of subject goods for which the exporter has used the loans, and Benefit = interest savings/applicable volume [s. 28 of SIMR] • Re: the Subsidizing of Certain Stainless Steel Wire Originating in or Exported from India – 4258-123 AD/1292, 4218-14 CV/98, July 15, 2004 - CBSA final determination classified subsidy program as a loan and used loan formula under s. 28 of SIMR

  35. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (c) For a subsidy classified as a Loan Guarantee, the CBSA will inquire as to the interest rate the exporter would have had to pay commercially in the absence of the guarantee, and as to the volume of goods for which the exporter has used the loan, and Benefit = Interest savings/Applicable volume The interest savings are calculated as a present-value under a hierarchy of alternative methodologies [s.31.1 of SIMR]

  36. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (d) For a subsidy classified as an Income Tax Credit, Refund or Exemption,if the credit refund or exemption is contingent on the export of goods, Benefit = amount/quantity exported [s. 32 of SIMR] • Re: the Subsidizing of Certain Stainless Steel Wire Originating in or Exported from India - 4258-123 AD/1292, 4218-14 CV/98, July 15, 2004 - CBSA final determination classified subsidy program as an income tax credit and used income tax credit formula under s. 32 of SIMR

  37. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (e) For a subsidy classified as a Deferral of Income Taxes,the CBSA inquires as to the interest which would have been payable on a commercial loan to pay the undeferred tax and if the deferral is contingent on export performance, Benefit = Present value of interest savings/amount exported

  38. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (f) For a subsidy classified as a Excessive Relief or Remission of Duties and Taxes, Benefit = (Relief - Duties on taxes originally paid)/Amount of applicable goods exported [s.35 and s.35.01 of SIMR]

  39. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (g) For a subsidy classified as a government’s Acquisition of Shares, the CBSA inquires as to whether the government paid too high a price for those shares, and Benefit = (Price-FMV)/Volume of subsidized goods [s. 35.1 of SIMR]

  40. The Subsidy Calculation –Step 2: How to calculate a subsidy? (ii) Benefit: (h) For a subsidy classified as a Purchase of Goods by Government Benefit = (Price – FMV)/Volume of subsidized goods [s.35.2 of SIMR]

  41. The Subsidy Calculation –Step 2: How to calculate a subsidy? • (ii) Benefit: (i) For a subsidy classified as Goods or services provided by a government, benefit = (FMV-price)/ volume of subsidized goods [s. 36 of SIMR]

  42. The Subsidy Calculation: Issue of Specificity (iii) Issue of Specificity: • A subsidy is specific where it is: (i) limited to a particular enterprise or industry or group of industries within the jurisdiction of the authority granting the subsidy; or (ii) a prohibited subsidy (i.e. its granting is contingent on export performance) [s. 2(7.2) of SIMA]

  43. The Subsidy Calculation: Issue of Specificity • Determination of Specificity by the CBSA: Notwithstanding that a subsidy may not be limited in the manner referred to on the previous slide, the President of the CBSA may determine the subsidy to be specific having regard to whether: • (i) there is exclusive use of the subsidy by a limited number of enterprises; • (ii) there is predominant use of the subsidy by a particular group of enterprises; • (iii) disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and • (iv) the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available [s. 2(7.3) of SIMA]

  44. The Subsidy Calculation: Issue of Specificity • Re Refined Sugar Originating in or Exported from the U.S., Denmark, Germany, Netherlands, U.K. and Korea and the Subsidizing of Refined Sugar Originating in or Exported from the E.U • Inquiry No.: NQ-95-002, November 6, 1995 -CITT finds that the subsidizing of certain sugar products originating in or exported from the European Union (a) has not caused material injury or retardation to the domestic industry; however (b) is threatening to cause material injury to the domestic industry -calculated subsidy using ministerial discretion under s. 2(7.3) of the SIMA Act

  45. The Subsidy Calculation: Issue of Specificity • Additional Considerations: • Where any of the factors listed in s. 2(7.3) is present, the CBSA President must consider whether its presence is due to: (i) the extent of diversification of economic activities within the jurisdiction of the granting authority, or (ii) the length of time that the subsidy program has been in operation • If the CBSA President is of the opinion that the presence of any factor is due to one of these reasons he may find the subsidy not to be specific. [s. 2(7.4) of SIMA]

  46. The Subsidy Calculation: Issue of Specificity • Non-specific subsidy: A subsidy is not specific where the criteria or conditions governing eligibility and the amount of the subsidy are: (i) objective; (ii) set out in a public document; and (iii) applied in a manner that does not favour or is not limited to a particular enterprise or group of enterprises [s. 2(7.1) of SIMA]

  47. The Subsidy Calculation: General Deductions from Calculations The Canadian government will deduct the following costs from the initial calculation of the amount of subsidy: • (i) the amount of any fee or other expense necessarily incurred by the recipient of the subsidy in order to obtain the subsidy; • (ii) the amount of any tax, duty or other charge levied by a government against the recipient of the subsidy for the purpose of offsetting the subsidy; and • (iii) the amount of any loss in the value of the subsidy that results from the deferred receipt of the subsidy where the deferral has been imposed by the government that granted the subsidy [s. 26 of SIMR]

  48. Submissions • Interested persons, namely producers, exporters, importers, purchasers and retailers, may make submissions throughout the investigation • Submissions may be made orally or in writing • Submissions may be confidential

  49. Verification and Evidence • If CBSA starts an investigation, it sends questionnaires to exporters, importers and, in subsidy investigations, the foreign government involved • Where sufficient information has not been provided to enable determination of the amount of the subsidy, or the regulations prescribe no methodology, the amount shall be determined in a manner specified by the Minister of National Revenue

  50. Upstream Subsidies, Downstream Effects The logic of subsidy calculation was challenged, among others, in two U.S. cases: • In Fresh, Chilled and Frozen Pork from Canada, No. DS7/R – 38S/30, the U.S. DOC had to calculate how much of the upstream subsidy given to Canadian pig farmers (i.e. for feed and transportation) found its way downstream into the pork meat reaching the U.S. • In Re Certain Softwood Lumber from Canada, No. WT/DS257/AB/R (January 19, 2004), the U.S. DOC had to calculate how much of the upstream subsidy given to tree harvesters found its way into exported lumber (including for example, bed frames) • Both cases involved: • The calculation of subsidy effects going into downstream products which are not subject goods or not exported • Debate as to dilution of the downstream effect as the subsidized product enters markets where competitive prices are unaffected by the subsidy. In Softwood (par.143), the WTO held that the DOC had to perform a “pass-through analysis” and not presume that upstream subsidies to the production of an input also bestow a benefit, downstream, to the unrelated producer of output.

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