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Anticipated Amendments to Canadian Trade Remedy Law and Practice

For Canadian practitioners and businesses affected by domestic trade laws and international trade agreements, 2015 and the early part of 2016 have been marked by important developments in international trade law. Some examples include the conclusion of the Trans-Pacific Partnership and the Canada-Ukraine Free Trade Agreement and the ongoing efforts to implement the Comprehensive Economic and Trade Agreement ("CETA") between Canada and the European Union. Canada also signed a number of Foreign Investment Promotion and Protection Agreements ("FIPA") during this time, with the latest being the Canada-Hong Kong FIPA. In the realm of economic sanctions, Canada has lifted a number of sanctions against Iran in February 2016. Canada is also defending the first major challenge to its antidumping laws and practices in a WTO challenge by Taiwan, with a Panel decision expected later in 2016.

The most recent initiative to generate interest and discussion in the Canadian trade bar is the April 2016 launch of a public consultation regarding potential changes to Canada's trade remedy system under the Special Import Measures Act ("SIMA"). Specifically, the Department of Finance Canada ("Finance") has requested that interested parties provide input and feedback with respect to three key areas – calculation of normal values, enforcement of anti-dumping and countervailing orders, and evidentiary standards.

Calculation of Normal Values

To determine whether goods are being dumped, the Canada Border Services Agency ("CBSA") will calculate an exporter's normal value and compare it to the export price of the good. In the event that price-based normal values are not usable, the CBSA will determine normal values using constructed values (ie fully allocated costs plus an amount for profit). While these rules produce reasonable outcomes when prices and costs are fully determined by competitive market forces, government policies and actions and other non-market factors can distort normal market forces and thereby render prices and costs not truly reflective of what a competitive market free of government distortion would produce. While section 15(c) of SIMA does require that home market sales be "in the ordinary course of trade for use in the country of export under competitive conditions", this provision is rarely used by the CBSA to exclude home market sales generally and has never been used to exclude sales affected by government intervention and other "particular market situations". Finance's public consultation is seeking input from stakeholders as to whether SIMA should be amended so as allow the CBSA to make findings that "particular market conditions" render both home market selling prices as well as input costs unusable for normal value purposes.

Finance has also highlighted the calculation of transfer prices using product inputs purchased from an affiliated supplier as an area of further concern when constructing normal values. In other jurisdictions such as the United States, the use of additional market benchmarks provides added scrutiny to this process when the good in question is deemed to be a "major input." Implementing similar benchmarks and procedures may ensure that distortions of input costs resulting from a special relationship between a producer and supplier are recognized.

For calculating a "reasonable amount for profits" to determine normal values pursuant to s. 19(b)(iii), Finance is also asking the public to comment on whether the six-part hierarchy of categories of "like goods" and "goods of the same general category" that can be used to determine the "amount for profit" as currently set out in Canada's Special Import Measures Regulations ("SIMR") provides sufficient flexibility for determining accurate profit rates.

Enforcement

The SIMA currently does not provide any process for stakeholders to address potential circumvention of anti-dumping or countervailing orders. In contrast, other major economies such as the US, EU, Brazil, and Australia, already have explicit anti-circumvention frameworks in place within their trade remedies legislation. Finance is consulting the public to determine whether it should also implement legislation to address any potential circumvention issues.

After an antidumping ("AD") and/or countervailing duty ("CVD") finding is in place, individual importations are subject to assessment of these duties pursuant to a process of determinations, redeterminations and appeals under SIMA. However, under the current SIMA framework, domestic producers are provided no notice of such determinations or redeterminations and have no standing to participate in or appeal these decisions, notwithstanding that such decisions affect their commercial interests. Additionally, exporters and importers seeking to confirm whether or not imported goods are covered by the scope of an AD and/or CVD order receive such confirmation by means of non-binding and completely confidential "ruling letters" issued by the CBSA. Under the SIMA consultation, Finance is seeking input as to whether SIMA should be amended so as to formalize the scope ruling proceedings and provide transparency and rights of participation to all interested parties, including domestic producers.

Finally, SIMA currently grants relatively broad and unlimited discretion to the Canadian International Trade Tribunal to grant exclusions from AD and CVD findings. Finance is asking for comments as to whether this discretion should be more limited, particularly where exclusions based on end-use or the geographic location of the end-user (which raise particular challenges with respect to enforcement and can undermine the remedial effect of the measure) are at issue.

Evidentiary Standards

In order to ensure that anti-dumping and countervailing investigations are not being unduly terminated without consideration of all the relevant evidence, Finance is asking the stakeholders to comment on whether the current evidentiary standard at the preliminary determination phase of an investigation is too stringent. This particular point of consultation arises from a series of recent cases in which the CITT has arguably re-interpreted the "reasonable indication of injury" standard to require domestic producers to fully provide their case on a balance of probabilities, thereby greatly increasing the burden and cost of the initial phases of cases.

Similarly, there is also concern that the current evidentiary standard for initiating an expiry review is not sufficiently clear or appropriate. Finance is requesting stakeholders to comment on whether the evidentiary standards for initiating an expiry review should be clarified or changed to ensure reviews are conducted when there is a risk of continued or resumed dumping or subsidizing that could potentially cause injury to domestic producers.

Canada's trade remedy laws have not undergone any major substantive changes in well over a decade and thus the Finance SIMA consultation represents a rare and significant opportunity for stakeholders to seek changes to improve SIMA's efficiency and efficacy. Discussion of the proposed amendments (and potentially other amendments) is likely to persist beyond the technical deadline for submissions of June 29, 2016 and stakeholders are strongly encouraged to make their views known.