In our last international trade brief, we discussed the United States-Mexico-Canada Agreement (USMCA), including what’s changed and what’s new and how it will impact cross-border trade. In this international trade brief, we discuss the provisional safeguards Canada will implement next week on certain steel imports, and the possible implementation of long-term safeguard measures.

On October 11, the Government of Canada announced that it will be imposing provisional safeguards starting on October 25, 2019 on imports of seven steel products and also ordered the Canadian International Trade Tribunal (the Tribunal) to investigate whether more long-term safeguard measures are necessary.

Nature of the provisional measures

The provisional safeguards will remain in place for 200 days from October 25, expiring on May 13, 2019.

The products affected by the safeguards include:

  • heavy plate;
  • concrete reinforcing bar;
  • energy tubular products;
  • hot-rolled sheet;
  • pre-painted steel;
  • stainless steel wire; and
  • wire rod

Additional information from the Department of Finance regarding these safeguards, and further description of the products covered, can be found here.

The provisional safeguard measures will be imposed through a quota system and a tariff rate of 25% for the quantities imported beyond the quota volumes (i.e., a tariff rate quota).

The quota threshold will be based on the average volume of the goods subject to the safeguards imported over selected periods in 2015-2016, 2016-2017 and 2017-2018. An additional limit will also be imposed on the share of the total quota that may be filled by producers in a single country for each steel product category equal to the historically highest import share from that country.

To be able to import a shipment of goods that are the subject of safeguards without the application of the 25% surtax, a permit must be issued for each shipment by Global Affairs Canada, based on meeting the relevant quota threshold. This permit can only be requested beginning with the day that is five days prior to the shipment’s arrival in Canada, and will expire 14 days after it is issued.

Certain countries will be excluded from the safeguard measures including the United States, Mexico, Chile, Israel and countries whose economies are considered developing. In the case of Vietnam, while it will be exempt on six of the categories of steel products due to its status as a developing country, exports from that country of rebar products will be subject to the safeguard measures.

These safeguard measures should not be confused with the tariffs imposed as countermeasures by Canada on U.S. origin steel, aluminum and other products, which were imposed in response to the United States’ imposition of tariffs on Canadian steel and aluminum based on “national security” grounds.

Requirements for imposition of safeguard measures

Safeguard measures, both provisional and long-term, are permitted under Canada’s WTO’s obligations. Specifically, in exceptional circumstances, members of the WTO are permitted to impose global safeguard measures to protect their domestic industry. These measures can be taken against imports that are otherwise fairly traded, and as such these proceedings are conducted even when there is no evidence of dumping or subsidization.

The imposition of safeguards under the WTO requires evidence to be produced that shows that imports of products subject to the provisional measures can be expected to continue to increase in volume such that they are causing or threaten to cause “serious injury” to domestic producers. This is a much higher threshold than in anti-dumping and countervailing duties trade cases, where the requirement is to demonstrate the existence or threat of “material injury.”

Though the imposition of provisional safeguards can be done on the basis of a preliminary determination, in order to continue to impose safeguards beyond the provisional period, the Canadian government will be required to conduct a safeguards investigation, seeking views of importers, exporters, foreign producers and domestic producers.

Review by the Tribunal for long-term safeguard measures

In the case of Canada, the task of conducting an investigation to determine if long-term safeguards are necessary is within the mandate of the Tribunal.

If, after the Tribunal conducts its investigation, it finds that long-term safeguards are necessary to protect Canadian industry, the Canadian government can then impose safeguards for up to an additional four years beyond the provisional measures. The Tribunal’s investigation will result in a report recommending the level of the surtax and the quota amount, for each category of goods, as well as how long the safeguard measures will remain in place. Participants in the process will therefore be able to make submissions on whether long-term safeguard measures are necessary, for how long, and the appropriate measure of surtax and quotas for each category of goods. As such, in these proceedings, unlike in the anti-dumping and countervailing inquiries, participants in the Tribunal’s investigation have much greater ability to shape the outcome of the Tribunal’s report recommending remedies, including by seeking exemptions for certain products that are not available from Canadian producers.

An overview of the timeline of the Tribunal’s investigation is set out below:

  • Interested parties should file a Notice of Participation with the Tribunal by October 29, 2018.
  • Companies involved in the domestic production, import or export of the products under investigation will be required to complete a questionnaire no later than October 31, 2018, which will be included in the record.
  • Written submissions will be due by December 6, 2018.
  • Public hearings will be held in January 2019.
  • The Tribunal will issue a report with its recommendations on April 3, 2019.

The full schedule of the Tribunal’s investigation can be found here.

As the deadline for filing the Notice of Participation is less than two weeks away, it will be important for companies who use the seven products being investigated to consider whether their business interests will be served by participating in this investigation. In our experience, a late-filed Notice of Participation can be rejected, whereas it is not uncommon to maintain minimal involvement to monitor the proceedings, or later on withdraw from the proceedings entirely.

These safeguard measures will impact all users of these products in Canada, whether they import these products or source them from domestic producers. The imposition of the surtax can be expected to increase the price of these products in Canada, and the quota system may lead to unintended shortages (particularly for specialized products), creating financial and production difficulties for companies that rely on these products as inputs to their business.