Importers used to Canada’s rules of origin may be surprised to discover that the Canadian International Trade Tribunal (CITT) has determined that those rules do not apply in anti-dumping and countervailing injury cases (SIMA cases taken under the Special Import Measures Act (SIMA) and Regulations) and has subsequently developed new rules of origin to apply in these cases. Because the CITT’s new rules may conflict with Canada’s other existing rules of origin, a company that determines the customs duties to apply to imported goods on the basis of an existing set of rules of origin may find that those goods are assessed SIMA duties on the basis of the CITT’s new rules.
The issue arises when finished goods shipped to Canada are produced using inputs from a country that is subject to SIMA duties. This was the case in Ideal Roofing (AP-2013-008 and AO-2013-009) which concerned the origin of fasteners shipped to Canada from the U.S., and whether those fasteners would be subject to SIMA duties under a finding against fasteners from China and Chinese Taipei. The fasteners imported from the U.S. were described as fastener systems produced from duds/blanks imported from Chinese Taipei. While the duds/blanks were used as inputs in the U.S., they would have been subject to SIMA duties had they been shipped directly to Canada from Chinese Taipei.
The importer argued that the processing in the U.S. transformed the Chinese Taipei-origin duds/blanks into U.S. – origin finished fastener systems that would not be subject to SIMA duties. The importer relied on Canada’s existing rules of origin, including NAFTA’s tariff shift rules and regional value content rules. The CITT rejected these arguments and noted that Parliament had not referred to any of these rules in the SIMA or SIMA Regulations and concluded that this meant that Parliament did not intend for these rules to be applied in SIMA cases. Therefore, the CITT developed its own rules of origin based on the definition of “origin” and “originate” in the Canadian Oxford Dictionary.
The CITT noted that “origin” and “originate” mean the beginning or source of a thing. Relying on these definitions, the CITT began the process of determining the origin of the fasteners at issue by first considering the input dud/blank used in their production. The CITT considered the dud/blank in light of the product definition applied in the SIMA case against China and Chinese Taipei to determine whether the dud/blanks had the essential physical and technical characteristics of the defined products. Having found that this was the case, the CITT turned to the finished fasteners to determine whether they also had the essential characteristics of the goods described in the product definition. After finding that the finished fasteners produced in the U.S. had these essential characteristics, the CITT determined that they still originated in Chinese Taipei and would still be subject to SIMA duties. The CITT concluded, at paragraph 44 of its Statement of Reasons, that
…The Tribunal does not believe that the blanks/duds from Chinese Taipei were modified to such an extent that the goods in issue are no longer of the same description as the subject goods. While the modifications to the blanks/duds may have made the goods in issue better and more expensive specialty products, the modifications did not make them different products.
The CITT upheld its new rule of origin in Oil Country Tubular Goods (PI-2014-002) when it determined that the processing used to make OCTG in the U.S. from green tubes imported from third countries did not change the essential characteristics of the OCTG to create a different product. As with the fastener systems produced in the U.S., the OCTG produced in the U.S. is subject to SIMA duties imposed on the third country green tubes because the processing undertaken in the U.S. did not confer U.S.-origin on the finished OCTG.
The CITT’s rule of origin seems to be at odds with Canada’s other rules of origin. For example, when considering a good produced in the U.S. from inputs that originate outside the NAFTA, the NAFTA rules of origin begin with the finished product shipped to Canada. The NAFTA tariff shift rules determine whether the change in tariff classification from classification of the input to classification of the finished product is sufficient to meet the specific tariff shit rules that applies to the tariff classification of the finished product. The NAFTA regional content rules determine the relative value of the NAFTA-originating and non-originating inputs used in the production of the finished product. Thus, the NAFTA rules consider the extent of processing undertaken in a NAFTA country or the value of the NAFTA input used in that processing rather than simply determining whether the finished product has the essential characteristics of goods described in the product definition of a SIMA finding.
Consequently, it is possible that, at times, the CITT’s rules of origin may conflict with Canada’s other rules of origin. For example, a good produced in the U.S. from imported inputs that meets the NAFTA rules of origin is a U.S.-originating good that is entitled to enter Canada subject to NAFTA duty rates and cannot be subject to SIMA duties due to a finding against similar goods from any other country. However, regardless of the NAFTA rules, the CITT could still conclude that the finished product is subject to a SIMA finding if it was produced from an input that was subject to the SIMA and if it retains the essential characteristics of the product definition used in that finding. On this basis, the CITT determined that SIMA duties could be imposed on the fastener systems produced in the U.S. from Chinese Taipei-origin duds/blanks.
So far, the CITT’s decisions have not been challenged at the Federal Court of Appeal. Until the Court overturns the CITT’s new rule of origin, or the CITT abandons this approach on its own, the new rules will continue to be applied. Since the Canada Border Services Agency (CBSA) can wait for up to two years following importation to issue a Detailed Adjustment Statement (DAS) assessing SIMA duties against those imports, importers should be concerned. In fact, an importer acting in good faith could find itself facing a hefty bill for SIMA duties long after the imported goods have been sold in the Canadian market. Therefore, importers should be aware of these rules of origin and should take steps to ensure that the finished products that they import into Canada could not be assessed SIMA duties.
