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Negotiation, Not Litigation is the Way to NAFTA Modernization

Posted by on Jul 30, 2018

Rather than just negotiate NAFTA modernization, the United States is trying to use additional illegal tariffs on steel and aluminum, and now WTO litigation, to force Canada to accept its NAFTA position.  The additional tariffs on Canadian aluminum and steel are illegal because they exceed the U.S. WTO and NAFTA bound duty rates (i.e., the highest duty agreed between the Parties) and, thus, violate those Agreements. Canada retaliated against these U.S. tariffs with its own “dollar-for-dollar” tariffs on U.S. imports to rebalance the concessions made in the WTO and NAFTA Agreements which the U.S. additional tariffs have upset.  Canada has also challenged the U.S. decision to impose these additional tariffs at the WTO.  The U.S. has responded with its own request for WTO Dispute Settlement against Canada’s retaliatory duties.  However, the U.S. litigation is futile because the possibility of outright U.S. success is so slim that even a U.S. win would result in any change in Canada’s tariffs.  At the end of this process, the parties will be no further ahead and both will be hurt by this “tit-for-tat” protectionism. The current U.S. approach to trade appears to be based on the erroneous view that the WTO guarantees equality of outcome rather than equality of opportunities.  This error seems to be why the U.S. Administration focuses on trade flows as a measure of success with trade deficits as evidence of unbalanced trade.  However, the WTO, like all other trade agreements, does not guarantee that exporters or importer will engage in international trade or that they will make a profit.  Instead, trade agreements aim to liberalize trade between the Parties by reducing barriers to trade.  This trade liberalization is reflected in reduced tariff barriers between the partners and controls on non-tariff barriers that could be erected in their place.  Trade liberalization does not mean that all tariffs will be reduced to zero, although that may be an outcome.  Trade liberalization simply moves the parties in that direction through negotiation.  For example, the U.S. claim that Canada has high tariffs of up to 275% on some dairy products is correct.  The U.S. also has high tariffs, such as 350% duties on...

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Responding to NAFTA Renegotiation

Posted by on Jun 2, 2017

Many are asking what the Trump Administration’s “America First” position on international trade will mean for Canada, how it will affect NAFTA (the world’s largest bilateral trade relationship) and how they can respond. The United States has indicated that it wants to renegotiate the NAFTA. In May 18, 2017 letters, the U.S. Trade Representative (“USTR”) notified Congress that the Administration intends to use renegotiation to modernize the NAFTA.   USTR noted “NAFTA was negotiated 25 years ago, and while our economy and businesses have changed considerably over that period, NAFTA has not.” To this end, USTR is seeking to include new provisions on intellectual property, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labour, environment and small and medium sized enterprises. The U.S. should have its negotiating objectives in place by August 16, 2017, the potential start date for the renegotiation and will likely take particular aim at the Canadian and Mexican measure identified as trade barriers in the annual USTR National Trade Estimates Report. For its part, Canada has indicated a willingness to modernize NAFTA and has been taking steps to prepare for the negotiations for some time. Canada will come to the table with its own objectives. Mexican officials have been openly calling for a NAFTA update for some time and should also be ready. Trade negotiations are complex undertakings that are intended to liberalize trade between the parties to the benefit of all Parties. This has been the case with NAFTA. Despite all the NAFTA Parties having protected particular interests and industries, the Agreement has provided greater benefit overall. If the renegotiations succeed, the NAFTA should increase the overall benefit. However, NAFTA renegotiation can raise the spectre of lost markets and lost business for individual businesses and sectors. This is because while NAFTA renegotiation will likely result in new opportunities, trade negotiations are complex and have many moving parts. The Parties may engage in “give and take” that will inevitably result in winners and losers; particularly if the Parties are not aware of the full extent of trade interests that are affected. How should businesses engaged in NAFTA trade or who want to participate...

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What Does “Tweaking” NAFTA Mean for Importers and Exporters?

Posted by on Feb 16, 2017

The February 13, 2017 Washington meeting between President Trump and Prime Minister Trudeau was a success with respect to trade relations between the two countries. Rather than taking an aggressive anti-NAFTA stance, as some had feared, President Trump noted that the United States has an “outstanding trade relationship with Canada” and stated that his goal was to “tweak” the NAFTA with regard to Canadian trade. The apparent result of the meeting was an implicit agreement to change the NAFTA in a way that increases the benefits for Canada and the United States; the best result that could be expected at this time. While this was a positive outcome, any change to NAFTA will result in winners and losers and more so if the simple tweak is not that simple. President Trump’s positive tone should not have come as a surprise. Although most Canadians tend to see Canada as the weak partner relative to the United States, available data shows that a healthy bilateral trade relationship has developed between Canada and the United States under NAFTA. Canadian officials point out that Canada – U.S. trade is worth approximately $2 billion per day and that Canada is the largest export market for 35 U.S. states. While this is impressive, it is more important to consider the U.S. perspective to gauge its view of the value of Canadian trade. Canada’s value as a trade partner can be gleaned from U.S. – Canada Trade Facts published by the U.S. Trade Representative, which reported that in 2015: Trade in goods between Canada and the U.S. was worth approximately USD $575 billion with Canada enjoying a USD $15 billion trade surplus. Although Canada was the United States’ second largest trade partner, it was the largest export market for U.S. goods with total exports to Canada worth approximately USD $280 billion. Although this was down approximately 10% over 2014 figures, total U.S. exports to Canada since NAFTA have increased 179% and account for approximately 18.5% of total U.S. exports. Trade in services between Canada and the United States was worth approximately USD $87.5 billion with the U.S. enjoying a USD $27.1 billion surplus. The value of...

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Consumer and Business Groups Now Can Have a Voice in the Gypsum Board Dumping Inquiry

Posted by on Oct 27, 2016

The dumping inquiry into Gypsum Board from the United States has just been complicated by a Cabinet Order directing the Canadian International Trade Tribunal (“CITT”) to consider whether anti-dumping duties will cause economic harm to Canada and Canadian gypsum board users. As a result of the Order, the CITT must now simultaneously conduct two separate inquiries into U.S. gypsum board imports. While this requirement will make the CITT process more difficult overall, it gives Canadian users and consumers an important voice at an early stage and represents a step forward for Canadian interests The anti-dumping inquiry started with a Complaint filed by a Canadian producer who claimed that imports of gypsum board from the United States into the Western Canadian market were dumped and caused or threatened cause material injury to domestic producers. The Canada Border Services Agency (“CBSA”) accepted the Complaint as properly documented and began its dumping investigation. On September 21, 2016, the CBSA issued its Preliminary Determination which found dumping margins for cooperating exporters ranging from 105.2% to 143.6% and 276.5% for non-cooperating exporters. The Canadian International Trade Tribunal (“CITT”) conducted a Preliminary Injury Inquiry which concluded, on August 22, 2016, with a finding that the evidence disclosed a reasonable indication that U.S. gypsum has caused or threatened to cause injury to domestic producers in Canada. As a result of these findings, the CBSA is continuing its investigation and the CITT initiated an Injury Inquiry to determine whether U.S. gypsum board dumped into the Western Canadian market has actually caused or threatens to cause material injury to domestic producers. On October 13, 2016, the Federal Cabinet issued an Order directing the CITT to conduct a separate inquiry to determine whether imposing dumping duties on U.S. gypsum board exported to the Western Canadian market is contrary to Canada’s economic, trade or commercial interests. Specifically, the CITT is directed to determine whether imposing anti-dumping duties on U.S. gypsum imports would substantially reduce competition in the Western Canadian market or would cause significant harm to consumers and businesses that use gypsum. If the Preliminary Duties found by the CBSA are maintained through the CBSA’s Final Determination, it is hard...

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Woods LaFortune Submission in the SIMA Review

Posted by on Jul 13, 2016

The Department of Finance is currently conducting a review of the Special Import Measures Act (“SIMA”), the basis of Canada’s anti-dumping and countervailing duty system, and issued an Invitation to Interested Parties to submit their views on a “focused set of potential changes.” Although the SIMA review is intended to take all stakeholder interests into consideration, the issues raised in the Invitation focus on increased protection for domestic producers. For example, the Department has asked whether the current system provides sufficient protection to domestic producers and has proposed establishing scope and anti-circumvention inquiries and further restricting the CITT’s discretion to issue product exclusions; all of which will benefit domestic producers at the expense of other stakeholders. Periodic review of legislation is important, but legislation should only be amended when the amendments are necessary. In our view, amending SIMA to increase protection for domestic producers is questionable because they are well protected by the current system. That domestic producers benefit from the SIMA is clear from recent decisions which show that injury and threat of injury findings are made in the vast majority of cases, injury findings are generally extended following expiry reviews and the number of product exclusions granted is relatively low. Because domestic producers already receive more than sufficient protection from Canadian authorities, any additional protection is unnecessary and will raise trade barriers to the detriment of other stakeholders including other Canadian manufacturers, end-users and consumers and to the detriment of the Canadian economy overall. Because we believe that the proposed amendments to the SIMA would unnecessarily harm other Canadian stakeholders (i.e., manufacturers, importers, distributors, end-users and consumers) without providing any actual additional protection to domestic producers, we filed a submission in response to the Invitation to make the following points: i) We argued that the SIMA should not be amended to provide greater protection to domestic producers. ii) We argued that the proposed scope ruling process, which would allow parties to request an inquiry to determine whether an imported good is subject to an anti-dumping/countervailing duty finding, is not necessary. But, if the Department decides to institute this process, it should not be applied in a manner...

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