Canada Files WTO Challenge on Broad Swath of US Trade Remedy Practices

18 January 2018

Canada has filed a wide-ranging WTO case (DS535) against the United States on various aspects of Washington’s trade remedy practices, citing examples affecting several countries and that in some cases date back several years.

The 32-page complaint was submitted on 20 December and circulated on 10 January. The first seven pages of the document cover six types of “measures” in relation to US anti-dumping and countervailing duty policies, with the remaining text filled with annexes detailing examples of the alleged violations. These examples span over two decades and have been flagged as evidence “in part” of Canada’s concerns.

In this context, the complaint also says that the different US measures violate, depending on the measure involved, certain aspects of the Anti-Dumping Agreement, Subsidies and Countervailing Measures (SCM) Agreement, Dispute Settlement Understanding (DSU), and the General Agreement on Tariffs and Trade (GATT) 1994.

The complaint drew swift condemnation from US Trade Representative Robert Lighthizer, who called the charges “groundless” and deemed the consultations request a “broad and ill-advised attack on the US trade remedies system.” The US official also warned that the move would be counterproductive for Ottawa, helping other economies instead.

“For example, if the US removed the orders listed in Canada’s complaint, the flood of imports from China and other countries would negatively impact billions of dollars in Canadian exports to the United States, including nearly US$9 billion in exports of steel and aluminium products and more than US$2.5 billion in exports of wood and paper products,” said Lighthizer.

Wide-ranging complaint

Among the concerns raised by Canada is how the US responds to instances where its anti-dumping or countervailing duty measures are deemed to be in violation of WTO rules – specifically, what Washington does in response to situations where it has collected cash deposits for the entries of imports at levels that have been subsequently deemed to be WTO-illegal.

Canada cites a so-called “Section 129 determination” that Washington uses to correct this issue, with Section 129 referring to a specific provision in the larger US law which enacted the WTO’s Marrakesh Agreement into the country’s domestic legal framework. Among other concerns, Ottawa argues that the US does not “immediately” take steps to refund the difference between the WTO-illegal and the corrected rates.

The complaint also addresses other issues having to do with the retroactive collection of duties, along with concerns over how the US calculates or interprets certain information during an investigation. On the latter, Canada has questioned the US practice when calculating whether a government has provided a good for “adequate remuneration,” which then determines the level of “benefit” conferred by a subsidy in countervailing duty cases. The US investigative authority disregarded “negative” benefits resulting from some comparisons that they could not offset with other positive benefit findings, said Canada.

Canada has also questioned how the US determines the presence of a subsidy when dealing with “export controls” such as quotas or bans on input products. Canada questions the US’ practice of treating these as “financial contributions” for downstream products and thus being potential countervailable subsidies that can face investigation.

The final two measures raised by Canada have to do with when US investigators choose to stop accepting evidence in investigations, along with how a tied vote among the members of the US International Trade Commission is treated. Under US trade remedy practices, a tied vote is considered to be an “affirmative determination” of material harm or potential harm to industry. Canada has thus questioned whether this “creates an institutional bias in favour of affirmative results.”

The vast bulk of the examples used to support Canada’s claims are US trade remedy investigations against other WTO members, with only a small number relating to investigations involving Canadian products. These specifically involve softwood lumber and “supercalendered” paper, otherwise known as glossy paper, which have been products where the two sides have long-standing public differences.

The other investigations cited by Canada involve countries across Europe, Asia, and some parts of South America, with many of the examples involving China. The oldest examples listed in the annexes date back to the mid-1990s, while the most recent are from 2017.

Brewing trade tensions

The timing of the complaint comes during a period of intense friction between the two sides, both on the softwood lumber and supercalendered paper duties mentioned above, as well as a separate US investigation and duties involving Canadian aerospace giant Bombardier, though this case is not referred to specifically in Canada’s complaint. (See Bridges Weekly, 5 October 2017)

The two countries are in the middle of negotiations to modernise the North American Free Trade Agreement (NAFTA), a decades-old deal which also includes Mexico as a partner. The sixth round of talks is scheduled to begin next week in Montreal, Canada. (For more on NAFTA, see related story, this edition)

Trade remedies have been among the topics which have taken centre stage in the NAFTA talks, in light of a US proposal to drop the “Chapter 19” dispute system for adjudicating cases on the subject. That proposal has been deemed untenable by Canada and Mexico. (See Bridges Weekly, 19 October 2017)

The case is the third WTO dispute filed by Canada against the United States over the past two months. The other two cases deal with anti-dumping measures (DS534) and countervailing duty measures (DS533), respectively, that the US has applied on imported softwood lumber from its northern neighbour.
There is a separate dispute (DS505) involving US countervailing duty measures on Canadian supercalendered paper, which began in March 2016 and is now at the panel stage. (See Bridges Weekly, 14 April 2016 and 23 June 2016)

Next steps

A request for consultations marks the first formal step in WTO dispute settlement proceedings. Should these consultations fail to lead to an agreed solution after at least 60 days, a complaining party can then ask for the establishment of a dispute panel to examine the case.

ICTSD reporting.

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