The Department of Finance is seeking input on a “focused set of potential changes” to the Special Import Measures Act (SIMA). The potential changes would be made in three areas – calculation of normal values, enforcement and evidentiary standards – and would be considered from the perspective of: whether the system protects domestic producers from unfairly traded imports; whether the resulting changes would be transparent and could be effectively administered; whether the resulting changes would be consistent with international trade obligations; and whether the resulting changes would balance stakeholder interests including interests of producers, importers, users and consumers. Despite this broad description, the review’s purpose appears to be to determine whether the SIMA continues to protect domestic producers from unfairly-traded imports and what changes should be made to improve this protection. This approach is unlikely to address the broader question of whether trade remedies benefit the Canadian economy as a whole, including domestic producers, importers, end-users and consumers. To get to this issue, we should consider a slightly different set of questions.
1. Does the SIMA currently protect domestic producers from unfairly-traded imports?
By any measure, the SIMA process continues to protect domestic producers from dumped and subsidized imports. A quick review of the CITT website shows that since Preliminary Injury Inquiries were introduced, the CITT has found in favour of domestic producers in almost every case, that between 2005 and 2015 the CITT made injury findings in approximately 77% of cases and that between 1990 and 2015 the CITT extended injury findings in approximately 85% of Expiry Reviews. In addition, product exclusions requested by importers and end-users are infrequently granted by the CITT and only in extraordinary cases when the requesting party can establish that product exclusion would not cause injury to domestic producers. The result is that domestic producers are far more likely to be protected by injury findings and that importers and end-users find it very difficult to obtain product exclusions. Consequently, the current trade remedy system continues to effectively protect domestic producers from unfairly-traded imports.
2. Are the proposals for scope and anti-circumvention processes necessary to ensure that injury findings are enforced?
It is not clear that either process is required. Scope concerns the issue of whether imported goods are within the product definition of an Injury Finding and should be subject to AD/CV duties. The CBSA enforces Injury Findings by monitoring imports and does take action against imported goods that it believes should be subject to AD/CV duties. There is no indication that the CBSA is not effectively ensuring that all imported goods that should be subject to an Injury Finding are subject to the Injury Finding and, consequently, no reason to amend the current system.
There is even less reason to introduce an anti-circumvention process, particularly as anti-circumvention does not include fraudulent schemes used to import goods without paying AD/CV duties. With the exception of transshipment through third countries and arrangements between exporters to import goods at lower duty rates, which seem to be fraudulent, the examples of circumvention set out in the Notice all relate to importing goods that fall outside the scope of the Injury Finding. None of these goods were considered by Canadian authorities and determined to be dumped or subsidized or to have caused or threatened injury as a result of dumping or subsidization. Consequently, the particular imported goods cannot be included within the group of subject goods defined by the product definition applied in an Injury Finding; importing these goods is legitimate and does not constitute circumvention.
In addition, it is not clear that there is a circumvention problem in Canada. Even if assembly of a finished good in a third country, importing parts for assembly in Canada or minor alterations to create a new and different product could be characterized as circumvention, the vast majority of injury cases heard by the CITT do not concern products that could be assembled in Canada or elsewhere or that could be altered in a minor way to avoid an Injury Finding. There is no problem that needs to be addressed.
However, if the decision is made to introduce a Scope Ruling or Anti-circumvention process, we should act carefully to ensure that these are not used to harass import trade. The burden of proof should fall on the party requesting a ruling submit probative evidence establishing that the imported goods either fall within the scope of an existing Injury Finding or that they are imported to circumvent an existing Injury Finding. The administering authority should be directed to strictly apply the product definition as written to determine whether the imported goods at issue should be subject to AD/CV duties. Parties who oppose the request for a scope or circumvention ruling should have the ability to ask that the review be struck at an early stage if it is clear that a party requesting a review has failed to meet its initial burden of proof. Finally, the administering authority should be authorized to award costs.
3. Does the SIMA effectively balance the interests of all stakeholders?
The SIMA does not balance the interests of all stakeholders because it was primarily intended to protect domestic producers from unfairly traded imports. However, other Canadian manufacturers and end-users also have an interest in obtaining imported products and those interests should be taken into consideration. Rebalancing the SIMA to give greater protection to domestic producers can only be achieved by making it more difficult for importers, end-users and consumers to obtain the imported goods and this will not necessarily benefit the Canadian economy overall. The better approach would be to determine how to change the SIMA, if necessary, to continue to protect domestic producers while ensuring that the interests of all stakeholders are recognized. Here are some examples of positive changes to the SIMA that should be considered.
First, the SIMA should be amended to eliminate the requirement that importers pay AD/CV duties allegedly owed or post a bond as a precondition for filing a request for re-determination should be abolished and the Customs Act should be similarly amended. This is one of, if not the only example of an appeal mechanism that requires the appellant to satisfy a monetary order before being allowed to appeal that Order. The requirement to pay the duties is often a hardship for the importer and puts its business at risk while the appeal proceeds. Even if the amount paid is returned with interests at some future date, the importer was denied access to those funds in the interim. There is no reason why importers should face these hurdles to having the appeals heard and they should be amended.
Second, the SIMA should be amended to allow more time for interested parties to file a request for a Public Interest Inquiry. A public interest inquiry is held to determine whether it is in the public interest to impose AD/CV duties on imported goods in whole or in part. Currently, an interested party has 45 days from the date an Injury Finding is issued to file a request for a public interest inquiry, which means that the interested party must review the AD/CV duties imposed as a result of the Injury Finding on the imported goods, determine whether or not it considers that imposition of the AD/CV duties at issue would be in the public interest and prepare and file a request for a public interests inquiry in this period. The 45 day schedule is tight for parties that were involved in the case and would be even more difficult for interested parties who come after the fact. In addition, the impact of the AD/CV duties on particular products may not become obvious until after the 45 day period has elapsed. Therefore, to ensure greater fairness the period granted for filing a public interest inquiry should be extended from 45 days to at least180 days, if not longer.
Furthermore, the SIMA should not be amended to impose more restrictions on the CITT’s discretion to grant product exclusions? The CITT rarely exercises its authority to grant product exclusions and does so only in cases where it considers that the requesting party has established that the product exclusion will not cause injury to domestic producers. Restricting the CITT’s ability to grant end-use and geographically-based product exclusions will make it more difficult for importers to obtain product exclusions, but this will not necessarily increase protection to domestic producers. With respect to imported goods used as parts by Canadian manufacturers, an end-use product exclusion would be appropriate if domestic producers are unwilling to supply the required parts needed to support the manufacturer. Refusing to grant a product exclusion in this case would provide no additional protection to the domestic producer while raising barriers to a Canadian company that is trying to manufacture finished goods in Canada. Apart from violating the WTO obligation that Injury Findings only be applied to the extent necessary to offset injury caused by dumping or subsidization, this result would also impose additional costs on Canadian manufacturing to the benefit of no one. Refusing to grant geographic production exclusions would result in similar costs by ensuring that domestic producers are protected in markets that they are unwilling to service. The current system for granting product exclusions is already too restrictive. The proposal to further restrict the CITT’s authority to grant product exclusions is unnecessary and would further tilt the balance in favour of domestic producers over other stakeholders and should be rejected on that basis.
The SIMA should be reviewed to determine how it can better address the requirements of all stakeholders and amendments should be made that benefit Canadian importers, manufacturers, end-users and consumers and particularly in cases where those amendments will have little or no effect on the domestic industry that benefits from an Injury Finding.
4. Would the Proposed Changes violate WTO obligations?
Any measure adopted by Government, including the potential changes to SIMA considered by the Department, could violate WTO obligations depending on the nature of the measure and its implementation. However, the proposal to establish an anti-circumvention mechanism that would address actions other than fraud that circumvent an Injury Finding would violate WTO obligations.
AD/CV duties can only be imposed on imported goods that have been reviewed pursuant to the requirements of the WTO ADA and SCM Agreements and have been found to be dumped and/or subsidized and to have caused or threaten injury as a result of the dumping and/or subsidization.
The anti-circumvention process proposed in the Notice would extend AD/CV duties to a range of products imported into Canada that were never the subject of an AD/CV investigation and do not fall within the scope of the product definition applied in an Injury Finding. Consequently, any decision to impose AD/CV duties on those imported goods following an anti-circumvention inquiry would violate Articles 1 and 18.1 of the WTO Anti-Dumping Agreement, Articles 10 and 32.1 of the WTO Subsidies and Countervailing Measures Agreement and Articles VI and II:2(b) of the GATT 1994.
If the anti-circumvention process results in the imposition of some other form of tax, duty or charge on the imported goods other than AD/CV duties, the measure would violate any or all of the MFN obligation in GATT 1994 Article I:1, the prohibition on the imposition of duties in excess of bound date rates in each Member’s Customs Tariff in GATT Article II:1(b) and the prohibition on the imposition of taxes, duties or charges on imported goods in excess of those applied to like domestic products in GATT Article III:2.
By comparison, anti-circumvention measures adopted to address fraud would not violate WTO obligations. Fraud, in this case, refers to attempts to pass off imported goods that are subject to an Injury Finding as non-subject goods by mislabelling the imports or some other similar action. The anti-circumvention would be WTO-consistent in this case because the imports goods at issue were already to an AD/CV investigation in which they were determined to have been dumped and/or subsidized and to have caused or threatened injury to domestic producers. Thus, the requirements for imposing AD/CV duties were already met so that the focus of the anti-circumvention process would simply be to determine whether the good at issue was actually a subject good imported in a manner to improperly avoid AD/CV duties.
Therefore, because the Department of Finance Notice specifically excludes fraud, the proposed anti-circumvention mechanism described in the Notice would violate WTO obligations by imposing AD/CV duties on imported goods outside the WTO AD/CV process. Canada should not adopt any measure that would clearly violate WTO obligations and should reject the proposed anti-circumvention mechanism on that basis alone.
Reviewing the SIMA from time to time is a good idea, but only if the intention is to ensure that the SIMA continues to operate in the best interests of the Canadian economy as a whole. The SIMA should continue to protect domestic producers from unfairly-traded imports that cause or threaten injury. Since the SIMA does provide this protection there is no reason to amend the SIMA to provide additional protection to domestic producers that would impose additional hardship on importers, end-users and consumers. Likewise, there is no reason to introduce enforcement mechanisms that are unnecessary and, particularly in the case of the anti-circumvention mechanism, that would violate WTO obligations. Instead, this is an opportunity to introduce to amend the SIMA to introduce changes that will benefit importers, end-users and consumers. Since these amendments will not detract from the protection enjoyed by domestic producers, they should be adopted because amendments that benefit importers, manufacturers, end-users and consumers that do not detract from the protection already provided to domestic producers will benefit the Canadian economy as a whole.
 Special Import Measures Act: Invitation to Submit Views, Canada Gazette Part 1, April 30, 2016, pg 1138.