Safeguard Actions: The (Not So) Secret Trade Weapon 

publication 

Fall 2005 - (International Trade Brief Fall 2005)

International Trade Brief Fall 2005

The Canadian International Trade Tribunal ("CITT") has recently seen an increase in the number of safeguard actions brought before it. This trend is unlikely to stop anytime soon, especially given the result in the September 1, 2005 bicycles safeguard decision. In a decision that bodes well for Canadian producers, the CITT recommended the imposition of a 30 percent surtax on bicycles imported from a number of countries. Needless to say, our client, the Canadian Bicycle Manufacturers' Association, is very pleased with the result.

So, what exactly are safeguard actions? In many ways, safeguard is the trade weapon that Canadian producers often overlook when their industry is being hurt by increased imports. Generally speaking, safeguard actions can be brought when there is an increased quantity of imported goods such as to cause, or threaten to cause, serious injury to the domestic producers of any like or directly competitive goods.

Global safeguard actions are permitted under Article XIX of the GATT, 1994, and in accordance with the WTO Agreement on Safeguards . In Canada, a global safeguard action is normally commenced by a domestic producer filing a complaint with the CITT. A complaint must be made or supported by domestic producers that represent a major proportion of production of the goods in Canada. If the CITT deems that the complaint meets this requirement and that it is properly documented, it will launch an inquiry. The CITT inquiry focuses on whether there has been an increase in imports sufficient to be the principal cause of serious injury to the domestic producers. The factors considered in assessing serious injury include whether there has been significant price undercutting, price depression or even suppression of price increases.

If the CITT concludes that there is serious injury or a threat of serious injury to Canadian production, it will issue a recommendation, as to the appropriate remedy, to the Minister of Finance within 180 days (270 days in complex cases) of commencing the inquiry. It is the Minister of Finance who ultimately decides whether or not to impose quotas or duties on the imported goods in question. These measures can be put in place for up to eight years.

While safeguard actions must be global in scope, two "safeguard type" processes were developed with respect to Chinese goods at the time of China's entry into the World Trade Organization. Canadian producers faced with increased Chinese imports can therefore choose to bring a "safeguard" action that is specifically focused on imports from China. The two additional remedies may be sought to offset the impact of imported Chinese goods during a phase-in period ending December 11, 2013. The two permitted safeguard-type processes are a market disruption inquiry and a trade diversion action.

A remedy may be sought in a market disruption inquiry where goods originating in China are being imported into Canada in such increased quantities or under such conditions as to cause or threaten to cause material disruption to domestic producers of like or directly competitive goods. Market disruption includes a requirement that the Canadian industry demonstrates that a rapid increase in imports from China is an important cause of material injury.

A trade diversion inquiry determines whether any action affecting the import of goods from China into the market of another country causes or threatens to cause a significant diversion of trade into the domestic market in Canada.

While the processes for Chinese safeguards have certain similarities to global safeguard actions, there are important differences with respect to timing and injury thresholds. In a market disruption inquiry, the domestic industry must only demonstrate that imports are a significant cause of material injury. This is a lower standard than the principal cause of serious injury required to be demonstrated in a global safeguard action. In addition, the inquiry process is significantly shorter. The CITT must report to the Minister of Finance within 90 days of commencing a market disruption inquiry, whereas global safeguard actions have traditionally been much longer inquiries, as noted above.

In a trade diversion inquiry, the domestic industry need not even demonstrate increased imports or injury, though it must demonstrate the likelihood of a significant diversion of trade into the Canadian market. A trade diversion inquiry is even shorter than a market disruption inquiry, and must be completed with 70 days of initiation of the inquiry by the CITT.

In the past, safeguard remedies have not often been utilized. What was once a relatively unknown trade weapon may not remain so for much longer, especially given recent evidence of revived safeguard activity in Canada. In addition to the Bicycles case, the CITT has just recently wrapped up hearings in the first ever Chinese market disruption case in Canada, argued by Geoffrey Kubrick of Lang Michener, on behalf of a group of Canadian barbeque manufacturers. While a safeguard action might not apply to every situation, it is certainly a remedy that should be considered when increased imports are causing harm to Canadian producers.

By C.J. Michael Flavell and Martin Masse

This article appeared in International Trade Brief Fall 2005.