Canada: Canada and Steel Imports: CITT Safeguard Determination a Partial Victory for Both Importers and Exporters

On July 4, 2002, the Canadian International Trade Tribunal issued a Notice of Determination in the safeguard inquiry which it launched at the direction of the federal government on March 25, 2002. The CITT’s determination could raise the price of imported steel products if the federal government decides to impose surtaxes or quotas on the affected steel products.

The CITT was directed to consider whether any of 9 different types of imported steel products is being imported into Canada from all sources in such volumes (since 1996) as to be a principal cause of serious injury or threat thereof to domestic producers of like goods. The CITT held public hearings into the matter commencing June 10, 2002. The CITT is now required to issue detailed reasons by August 19, 2002, including any recommendations for action to be taken by the federal government.

The CITT decided that 5 of the 9 steel products under consideration have caused serious injury to Canada’s steel industry. They are: flat-rolled discrete plate; flat-rolled cold-rolled sheet and coil; angles, shapes and sections; concrete reinforcing bars; and welded and seamless tubular standard pipe. The CITT determined that the following 4 products did not cause serious injury to Canadian steel companies: flat-rolled hot-rolled sheet and coil; flat-rolled corrosion-resistant sheet and coil; hot-rolled steel bars; and cold-drawn and finished bars and rods.

Based on the CITT’s determinations, and in accordance with international trade law rules, the federal government is authorized to levy import tariffs or quotas on those products which the CITT has determined have caused serious injury to the Canadian steel industry.

Following receipt of the CITT’s detailed reasons and recommendations, the Canadian government will decide whether to impose safeguard measures against those imported steel products that have seriously injured the Canadian steel industry. It is too early to tell whether the Canadian government will take any action, and if so, what form such action will take.

Pursuant to international trade law rules, the government has the right to impose on the relevant steel products either surtaxes under the Customs Tariff, or quotas under the Export and Import Permits Act. Any measures taken should be on a prospective rather than retroactive basis. In addition, if any such measures are taken, the government must be prepared to provide concessions of equivalent value to the exporting countries affected. Therefore, while safeguard measures should serve to provide some degree of protection to Canada’s steel industry, the required trade concessions or compensation could impact negatively on other companies or sectors of the Canadian economy. The federal government will have to weigh the benefits and costs of taking safeguard measures and balance the interests of the steel producers with the interests of other Canadians.

In addition, safeguard measures are intended to be temporary. In general, the measures may only be in place for a maximum of 4 years; however, the WTO Agreement on Safeguards permits such measures to be extended in certain circumstances for total overall period of 8 years.

The Canadian government may not take any measures with respect to the 4 steel products that were ruled not to have caused serious injury; however, the government may continue to monitor those products and may choose to take safeguard measures, if warranted, at a later date. In this connection, the WTO Agreement on Safeguards permits the Canadian government to take immediate safeguard measures where there are "critical circumstances", in particular where a delay in protection might result in damage to domestic producers that would be difficult to repair. In such circumstances, provisional measures can be applied prior to a formal inquiry and determination of serious injury. However, such measures cannot exceed 200 days and all surtaxes must be refunded to importers if it is determined in the subsequent injury inquiry that increased imports are not causing or threatening to cause serious injury.

Safeguard measures have not previously been applied by Canada, at least since the creation of the CITT in 1989. However, safeguard measures are becoming a favourite alternative trade remedy to anti-dumping actions. In 1995, the year in which the WTO Agreement on Safeguards was implemented, there were 2 safeguard actions by WTO countries. In 2001, this number increased to over 50. The U.S. has been the most active in terms of countries invoking safeguard measures; Chile, India, South Korea and Argentina, among others, have also applied safeguard measures. It is interesting to note that in every case in which safeguard measures have been appealed to the WTO (some 11 cases thus far), the WTO has decided the measures were not in accordance with WTO rules and were not appropriate. At least one interested party has suggested that the CITT misunderstood and/or misapplied the proper legal test in its determination of "serious injury". Therefore, it is likely that a vigorous debate and lobbying efforts will continue for some time following the release of the CITT’s detailed reasons on or about August 19, 2002.