Written by Darrel H. Pearson and Margaret M. Kim
On August 14, 2018, the Canadian government undertook public consultations to examine whether imports of seven steel products warrant safeguard action.1 The products under review are: steel plate, concrete reinforcing bar, energy tubular products, hot-rolled sheet, pre-painted steel, stainless steel wire, and wire rod (product description including HS codes are found in the Annex to the Department of Finance Notice).
Consultations will address whether the named steel products are being imported in such increased quantities as to “cause or threaten to cause serious injury to the domestic producers of these products”. The impetus behind the consultations is the U.S. government imposed section 232 tariffs on foreign steel and aluminum products in March of 2018. There is concern in Canada that these U.S. tariffs will result in the diversion of otherwise U.S.-destined imports to the Canadian market in competition with the Canadian domestic steel industry. The Canadian government is also seeking to be well-positioned to demonstrate that Canada will not be a back-door for foreign steel imports into the United States when the section 232 tariffs are lifted.
What is a Safeguard?
Safeguards are exceptional measures intended to temporarily assist domestic producers that have suffered, or are threatened by serious injury from increased imports of specific goods. Unlike anti-dumping or anti-subsidy investigations, these subject goods may be fairly traded but nonetheless cause injury.2
Safeguards can take the form of: (i) an import surtax under the Canadian Customs Tariff, or (ii) an import restriction (e.g., import quota or tariff-rate quota) under the Export and Import Permits Act. The Governor-in-Council (i.e., federal Cabinet) has the authority to impose safeguards through two routes: (i) on a provisional basis and only in the form of a surtax, after a report by the minister of finance, in “critical circumstances”, or (ii) following an inquiry by the Canadian International Trade Tribunal (CITT).3
Details of the Safeguard Consultations
The consultations will inform the finance minister as to the likely need for safeguard measures to protect the domestic steel industry from imports. The minister of finance will assess the urgency for safeguard measures and, if determined to be urgent, will apply them on a temporary basis and refer the matter to the CITT for a formal inquiry process. That process culminates in a recommendation to the minister of finance as the whether safeguard measures should be applied, and the nature of those measures. The finance minister will then make a final determination.
If the application of safeguard measures is judged not to be urgent but nonetheless an option the minister of finance determines merits consideration, the matter will be referred to the CITT for its recommendations. The Minister of Finance will then finally decide whether safeguard measures should be implemented.
The Canadian approach is in alignment with that of the European Union, which imposed provisional safeguards on steel product imports on July 19, 2018, in the form of product-specific tariff-rate quotas whereby a 25 percent surtax will be applied to imports in excess of 100 percent of the annual average volume of imports between 2015 and 2017.
What Can Businesses do to Protect Themselves?
It is critical that foreign manufacturers and exporters, Canadian importers and end-users of affected steel products review their current supply chains to determine the impact of proposed safeguard measures. Interested parties are strongly encouraged to file written submissions with the Ministry of Finance with respect to the proposed safeguard action by the Wednesday, August 29, 2018 deadline.
In our view, effective submissions would at a minimum address the following issues:
1. whether or not safeguard measures merit application in connection with the imports (by category);
2. if safeguard measures should apply, whether exclusions are appropriate (by product sub-category);
3. whether or not it is urgent that safeguard measures be applied, failing which that their application on an urgent basis should await either a time when the need for their application becomes apparent, or only after a hearing and recommendation by the CITT;
4. the length of time during which imports should be subject to safeguard measures; and
5. the conditions under which imports of non-safeguarded steel should be grand-fathered including those fulfilling pre-existing purchase orders or other forms of contractual commitments, goods in transit, or other conditions.
If you would like Bennett Jones to assist with the preparation of a safeguard-related response submission, or to provide strategy advice relating to the management of potential risks arising from the proposed safeguard actions, please contact Darrel Pearson, Head of the International Trade and Investment practice group.