The Canadian International Trade Tribunal (the Tribunal) released its report yesterday in its inquiry into whether Canada should maintain safeguards (tariffs or quotas) on any of seven categories of imported steel. For the most part, the Tribunal recommended that it should not.
This was the first Canadian safeguard proceeding in 15 years and, as the Tribunal noted, one of the most complex inquiries it has ever conducted, involving over 38,000 pages of documents and 119 participants, including Canadian and foreign producers, importers, trade unions and foreign and provincial governments.
Last October, the government imposed safeguards provisionally for 200 days, claiming that they were warranted by the prospect of serious injury to the domestic steel industry caused by a surge of imports diverted into the Canadian market because of U.S. section 232 tariffs and global oversupply. The Tribunal was directed by the government to conduct an inquiry and to make findings as to whether there had been a surge in imports causing or threatening serious injury. If the Tribunal’s serious injury findings were affirmative, it was directed to recommend whether the provisional safeguards should be made “definitive”, meaning that they could be maintained for four years or more (inclusive of the 200 day provisional safeguards).
The Tribunal recommended that no tariffs or quotas be imposed on imports of five of the seven categories: hot-rolled sheet, pre-painted steel, concrete reinforcing bar, wire rod, and energy tubular products. The Tribunal recommended the imposition of a tariff-rate-quota on imports of heavy-plate and stainless steel wire, but not on imports of those products from Korea and certain other countries.
The Tribunal’s report, more than 130 pages in length, represents a triumph of rules-based trade over political and economic opportunism. Its recommendations are grounded in the evidence before it on trade flows and the performance of the domestic industry and consistent with the stringent requirements for imposing a safeguard under Canadian and WTO law.
What Happens Next?
The Government of Canada must decide by May 13, 2019, the date when the provisional safeguard measures will expire, whether to accept or reject the Tribunal’s recommendations. As a practical matter, it will be exceptionally difficult for the government to justify imposing safeguards on products or countries where the Tribunal has now publicly recommended against doing so and would leave Canada highly exposed to successful legal challenges (and potentially damaging trade retaliation) by its trading partners, at the WTO or under regional free trade agreements.
Nevertheless, with a federal election looming and in the face of major regional and global trade uncertainties, including the future of the USMCA, U.S.-China trade tensions and the fate of the U.S. sec. 232 tariffs on Canadian steel, we expect the government will face considerable pressure from the domestic industry to find new ways to insulate it from import competition.
Until the government makes its decision, the provisional safeguard tariffs and quotas remain in place and importers must continue to apply for shipment-specific import permits for covered steel products. Quota volumes for heavy plate, pre-painted steel, and wire rod already are nearly exhausted.
The WTO Agreement on Safeguards states that provisional safeguard measures that take the form of tariff increases, such as Canada’s provisional 25 per cent surtax, be promptly refunded if the subsequent investigation does not determine that the surges of imports has caused or threatens to cause serious injury to a domestic industry. Canada’s domestic legislation gives discretion to the Minister of Finance to issue refund orders for provisional safeguard surtaxes; it does not directly correspond to the mandatory language of the WTO Agreement on Safeguards. If the government follows the Tribunal’s recommendations it will be interesting to see how it deals with refunding surtaxes paid by importers during the 200 day provisional safeguard period.
BLG’s International Trade law team led the way in the inquiry process on behalf of major steel importers, downstream Canadian users, and foreign producers, successfully opposing safeguard recommendations on concrete reinforcing bar, hot-rolled sheet, heavy-plate from Korea, and energy tubular products. We will continue to defend our clients’ interests as the government considers its response to the Tribunal’s report.