The China factor: Canada's trade remedy response to China's economic challenge.

AuthorHerman, Lawrence L.
  1. Introduction

    Growing concern is being voiced in the Canadian manufacturing sector over the huge and unrelenting increase in Chinese goods entering the market. This has produced allegations of unfair trading, and Canadian companies have increasingly resorted to invoking Canada's trade remedy laws as one response to this phenomenon. The results of these cases are mixed, however. While some complainants have succeeded, the overall results are less than decisive that Chinese-origin imports have been massively dumped or subsidized or have been injuring Canadian production.

    Dumping complaints against Chinese imports under Canada's Special Import Measures Act (1) ("SIMA") have been around for many years. Until recently, Canada allowed the use of surrogate-country data for purposes of estimating Chinese dumping margins, given the policy of the Canada Border Services Agency ("CBSA" or "Agency") and its predecessors that China was a non-market economy country. This long-standing policy has been gradually changed over the last ten years, culminating in a key policy statement by the Agency in 2004 that, unless proven otherwise, it will consider China to be operating under free market principles.

    With respect to subsidies, unlike the United States, Canadian law permits the application of countervailing duties on goods from China. (2) Canadian countervail cases against China, however, were non-existent until 2004. Since then, partially resulting from the change in CBSA policy regarding market-economy countries, there have been a number of investigations and two final determinations resulting in countervailing duties on Chinese imports. Because complete information from the Chinese government on its subsidy programs was not provided, however, the jury is still out on just how many, and to what extent, Chinese government programs are aiding manufacturing industries in that country.

    With respect to safeguards ("emergency" relief), Canadian laws were changed in 2002 to implement China's World Trade Organization ("WTO") accession protocol and to permit targeted cases to be taken against Chinese products that are alleged to have caused market disruption. (3) The Canadian experience in the single China safeguard case to date has not been positive. The government has signaled a reluctance to implement safeguard relief--for a variety of reasons--against consumer products coming from China.

  2. Changes in Canadian Policy on China's Market Economy Status

    China had historically been considered a state-trading nation in dumping investigations by the CBSA and its predecessors, which have used surrogate-country information to estimate Chinese normal values. Typical of its approach was the investigation in Carbon Steel Plate (4) in 1997, where the CBSA's predecessor agency said this:

    The Department has historically designated China as a state-controlled economy with the result that normal values for imports from China have generally been determined on the basis of sales of like goods in a third or surrogate country. At the time of initiation, the Department forwarded a Request for Information to the Chinese Government and exporters in an effort to determine whether the steel industry in China should still be considered to be state-controlled. In response, the Department received submissions from the Government as well as two exporters--Shanghai Pudong Iron & Steel (Group) Co. Ltd. and Angang Group International Corporation. In reviewing these submissions, the Department identified additional information requirements and supplementary Requests for Information were issued. The Government of China responded to the Department's supplementary Request for Information just prior to the preliminary determination. Based on a review of the submission, additional information and clarifications were required. Accordingly, shortly after the preliminary determination, another supplementary Request for Information was sent out. No response was received from the Chinese Government or the two exporters regarding the Department's latest Requests for Information. As responses to the Department's latest Requests for Information have not been received and on-site verification has yet to take place, the Deputy Minister cannot form an opinion as to whether the steel industry in China continues to be state-controlled under the provisions of the SIMA. As with Russia, the economy of China has historically been considered to be state-controlled. Accordingly, normal values for the subject goods of Chinese origin were also established by ministerial specification on the basis of the average normal value found for like goods in three surrogate countries. (5) The above-cited passage exemplifies a long-standing policy on the part of Canada's investigating agencies that had considered China to be a non-market economy unless otherwise demonstrated, meaning that the burden was on the exporters and Chinese government to make the case. (6) This policy obviously facilitated the task of Canadian complainants, who were faced with difficulties obtaining reliable Chinese domestic selling-price information or estimating Chinese production costs that bore any semblance of reality.

    The Agency's policy began to shift in the early years of the present decade. An illustration of this is Laminated Windshields, (7) a dumping case initiated in 2001. The Agency accepted the complainant's submissions on initiation that China was a non-market economy. (8) It maintained this view at the Preliminary Determination, albeit with some cautionary observations. (9) The full surprise was saved for the Final Determination where the Agency changed course and arrived at the following conclusion:

    Based on the analysis of the responses received from the government, the four exporters and publicly available information as well as information retrieved during the verification visits, pursuant to subsection 20(1) of SIMA, the Commissioner is of the opinion that the government of China does not have a monopoly or substantial monopoly over it's export trade in the replacement windshield industry. The Commissioner is also of the opinion that the government of China does not substantially determine domestic prices and that there is no sufficient reason to believe that these prices would be different in a competitive market. Consequently, the CCRA considers that China's replacement windshield industry operates under market conditions and that the provisions of section 20 do not apply. (10) In another subsidy investigation in Leather Safety Footwear (11) in 2001, later in that same year, the CBSA reverted to surrogate-country data but only because of insufficient information from the Chinese Government to show that free market principles were in operation. The Agency made it clear, however, that with more complete information from the Chinese end, it would be prepared to hold that that country and the industry concerned to be operating on a free market basis:

    The government of China provided a response to the CCRA's questionnaire regarding the economic conditions in the footwear sector. This submission was deemed to be incomplete and inconclusive with respect to whether economic reforms have progressed sufficiently such that the footwear sector is no longer operating in non-market economic conditions. For the purpose of the preliminary determination of dumping, the CCRA maintained its position that the footwear industry in China is operating under non-market conditions.... In the absence of sufficient information from the government of China and the producers in the surrogate countries, normal values were estimated on the basis of the best available information, i.e. information supplied in the complaint. The government of China has not responded to a supplementary RFI issued at the time of the preliminary determination of dumping. Therefore, the CCRA's position that footwear industry in China is operating under non-market conditions remains unchanged. As a result, the CCRA continued its attempts to obtain information from producers in a surrogate country. These requests have yielded no information to date. (12) Later investigations following Laminated Windshields and Leather Safety Footwear continued the Agency's policy of holding that China was a non-market economy but with the caveat repeated that, if enough information was provided to the Agency by Chinese authorities and by the industries under investigation, it would be prepared to deem that particular sector to be a free market and disallow use of surrogate-country data. (13)

    That policy change was formally promulgated by the CBSA in an important notice to stakeholders in June 2004. (14) The notice said that substantial progress had been made in former Communist countries, including countries like China, toward market liberalization. The Agency therefore decided to abandon its existing policy of a blanket categorization of China as a non-market economy country in favour of a case-by-case examination of the sector under review.

    A critical part of the new policy was the change in the nature of the evidence that the Agency would rely on in applying that policy. As noted previously, the Agency had traditionally proceeded on the assumption that any country, like China, operating under a Communist or state-controlled form of government was a non-market economy. The burden was on the exporters' government and on responding industries to disprove that fact. The new policy shifted the evidentiary burden to the complaining industry in Canada. As stated by the Agency:

    Regardless of the country, sector or product under investigation, antidumping investigations and re-investigations (administrative reviews) are to be initiated on the presumption that section 20 of the Act is not applicable to the sector under investigation unless there is evidence that suggests otherwise. If a complainant alleges that goods are exported to Canada from a country in which...

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