Canada: Grain Corn Dumping Case Provides Strategic Grist for the Litigation Mill

Article by Cliff Sosnow, ©2006, Blake, Cassels & Graydon LLP

The Canadian Grain Corn case raises two often overlooked strategies U.S. exporters and their advisers can use to counter a dumping litigation initiated to block access to the Canadian market.

Canadian trade law counsel have schooled their Canadian manufacturing clients well on the strategic merits of using anti-dumping or countervailing duty litigation to block U.S.-sourced imports as part of a strategy to maintain or grow market share. Recent rulings by the Canadian government on imports of U.S. grain corn, while in some ways simply the latest manifestation of a 20-year battle, point to two often overlooked responses U.S. exporters and their Canadian and U.S. trade advisers can use in the appropriate situation to counter this market-closing strategy.

Recently, the Canada Border Services Agency (CBSA) issued a final dumping and subsidy determination against unprocessed grain corn exported to Canada from the U.S. and the Canadian International Trade Tribunal (CITT) made a positive preliminary injury determination that the dumping and subsidizing of unprocessed grain corn is injuring Canadian domestic producers. In consequence of both decisions, provisional countervailing duties of USD 1.07 per bushel and provisional anti-dumping duties of USD 0.58 per bushel were imposed on imports of grain corn since mid-December. While the CITT made a negative final injury determination, saving U.S.-sourced imports a final combined duty of 44%, the dispute raised important aspects to anti-dumping litigation often overlooked or forgotten by exporters faced with the possibility of being shut out of the Canadian market by a successful dumping complaint.

Grain corn is not what is eaten off the cob or purchased in cans at the grocery store. Its main use is for animal feed, but it is also used to make a wide variety of products such as alcohol, including spirits and fuel ethanol; corn syrup and sweeteners; corn starch; human and pet food; cosmetics; and soft drinks.

Canada is in a deficit position when it comes to grain corn because the country does not grow enough to meet demand so it needs to import grain corn from the U.S. In recent years, while Canadian corn farmers have produced roughly 350 million bushels of grain corn a year, valued between about CAD 1 billion and CAD 1.4 billion, U.S. imports have made up about a quarter of all grain corn used in the country. The USD 1.65 duty per bushel would have added, according to recent statistics, upwards of CAD 160 million in costs for the diverse group of domestic manufacturers, processors and feedlot operators that use grain corn as a manufacturing input. If the preliminary injury determination had been affirmed, the repercussions would have been expected to be felt far and wide.

The dispute highlights two often overlooked strategies, one uniquely Canadian, to counteract producers using dumping litigation to close markets.

Public Interest. Unlike the U.S., Canada permits "public interest" inquiries following a finding of final injury caused by dumped or subsidized imports. Normally, an injury finding leads to the imposition of anti-dumping or countervailing duties. However, the CITT may decide, as a result of a petition, that there are reasonable grounds to conclude that imposing part or all of those duties may not be in the public interest. What made the Grain Corn case ripe for a public interest inquiry is the broad brush of the impact on a diverse array of industries should the dumping and countervailing duty remain in place.

In determining whether a public interest determination is warranted, that all or a part of the duties should be eliminated or reduced, the CITT looks at whether imposing the full duties will likely cause significant damage to producers in Canada that use grain corn as an input in the production of other goods; or whether such duties would significantly impair competitiveness by limiting access to grain corn when used as an input in the production of other goods; or whether duties would significantly restrict the choice or availability of goods at competitive prices for consumers or otherwise cause them significant harm. The Minister of Finance has the final say in whether or not to act on the CITT public interest ruling.

WTO Scrutiny. The CITT’s preliminary injury determination gave rise to the beginnings of a World Trade Organization (WTO) dispute to challenge the very foundation of the determination. Although not determinative of CBSA or CITT rulings, Canadian law requires both agencies to make determinations in accordance with WTO dumping and subsidy law. While not appropriate in every case, the depth and wide-ranging impact of these agency determinations raised heightened WTO due diligence scrutiny, in this case of the CITT preliminary injury determination.

Responding to U.S. industry complaints, the United States Trade Representative (USTR) commenced WTO dispute proceedings claiming that the CITT did not consider the volume and price of imports of U.S.-sourced grain corn and the impact of those U.S. imports on the domestic industry, in particular pointing out that U.S. imports have declined in the review period by 42%. USTR charged that the CITT did not consider other factors that would have affected Canadian corn prices, including fluctuations in the exchange rate. USTR also alleged that the preliminary injury determination, which requires that the CITT have evidence of a "reasonable indication" of injury in order to make a positive injury determination, violates the required WTO evidentiary threshold to impose duties. If the CITT had made a positive final determination, a successful WTO challenge would not only have nullified the duties, but the very foundation of Canadian preliminary injury rulings would have been called into question.

Consider the OptionsThe Grain Corn case was unlikely to achieve the lofty heights of media play given to the softwood lumber dispute. But it provided strategic grist for the litigation mill, more so than any other recent case, that there are often overlooked litigation tools available to U.S. manufacturers, their exporters and counsel that, in the appropriate case, may be of use to significantly reduce the dollar costs otherwise incurred when anti-dumping and countervailing duties are levied on imports of U.S.-sourced product.

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