26 Sept 2019
Canada Strengthens Trade Remedy Regime
Canada has made certain amendments to its trade remedy regime in an effort to enhance its effectiveness and better protect Canadian producers and workers against the impact of unfairly traded imports.
In AD duty investigations, dumping margins are normally calculated by comparing the prices of the goods when sold in the domestic market of the exporting country with the prices of the goods when sold for export to Canada. However, alternative methodologies may be appropriate for calculating dumping margins if domestic prices in the exporting country do not allow for a proper comparison (i.e., if they are distorted).
According to Canadian authorities, this may arise because the producer of the goods sent to Canada has purchased inputs for these goods from an associated party at a price below cost or below a representative benchmark, or because of the presence of a particular market situation (e.g., where government intervention results in price distortions or when factors such as significant macroeconomic volatility affect the prices and input costs in the market). In such cases, the Canada Border Services Agency may calculate an alternative price for the goods through a constructed costs methodology, where the price of the goods is determined as the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs, as well as profits.
With this in mind, Canada has amended the Special Import Measures Regulations to provide a method for the CBSA to determine an appropriate amount for the cost of production in the two instances below.
1. Transactions Between Associated Parties. The amendments provide the CBSA with flexibility in calculating the costs of production when inputs are supplied by an associated supplier (e.g., a subsidiary or affiliated company). The CBSA may use for this cost the highest of the transfer price between parties, the actual costs to the supplier, or a reasonable benchmark determined in the country of export if such information is available.
2. Particular Market Situation. The CBSA already has the ability to disregard sales in the domestic market of the exporting country if they are affected by a particular market situation. In those cases, the CBSA may use alternative methodologies, such as constructed costs, when calculating dumping margins. The amendments further specify that in determining the costs of production where a particular market situation has been found, alternative options can be used to determine the cost of inputs if they do not allow for a proper comparison between the sale of goods in the country of export and the sale of goods exported to Canada.
The amendments provide a hierarchy of alternatives to be used to determine the costs of inputs, depending on the information available and whether the alternative reflects the actual cost of the input, so as to permit a proper comparison. For instance, if such information is available the CBSA could use the price of a similar input produced in the country of export and sold to the exporter or other producers in the country. Other alternatives include referring to published prices in trade publications, with price adjustments to be made as necessary to reflect the actual cost of the input in the country of export.