significant developments in international trade and

September 26-28, 2004 56th Annual Conference – Toronto

Canadian Tax Foundation

Brenda C. Swick - 1

Significant Developments in International Trade and

Customs Law

Brenda C. SwickMcCarthy Tétrault LLP*

*With the assistance of Helen Gray, McCarthy Tétrault LLP



Brenda C. Swick - 2

Presentation Overview1. Customs Valuation2. Customs Enforcement: Ascertained Forfeiture3. Customs: Verification – Rules of Origin4. Amendments to the NAFTA Rules of Origin5. Canadian Anti-Dumping and Countervailing Duty Regime6. Recent Canadian Dumping and Subsidy Investigations

against China7. Canada-US Softwood Lumber Dispute: WTO Challenges8. Canada-US Softwood Lumber Dispute: NAFTA Challenges9. WTO Negotiations10. WTO Dispute Settlement



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1. Customs Valuation

Value for Duty – When is an Importer a “Purchaser in Canada?”

Customs Act, s. 48(1)• Value for duty of goods is the transaction value of

the goods if the goods are sold for export to a purchaser in Canada.

Value for Duty Regulations, s. 2.1• “Purchaser in Canada” means (a) a resident or (b)

a person who has a permanent establishment in Canada.



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Value for Duty Regulations

(a) Resident• A corporation that carries on business in

Canada and of which the management and control is in Canada.

(b) Permanent Establishment• Fixed place of business and includes a place

of management…through which the person carries on business.



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AAi.Fostergrant Canada Co. v. Canada (Commissioner of Customs

& Revenue Agency)

• Issue: Whether AAi.Fostergrant Canada is a “purchaser in Canada” within the meaning of the Customs Act.– Depends on whether AAi.Fostergrant Canada

“carries on business” in Canada.• Federal Court of Appeal: AAi.Fostergrant

Canada is a “purchaser in Canada” because AAi.Fostergrant Canada “carries on business” in Canada.



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AAi.Fostergrant Decision:Federal Court of Appeal

• Interpretation of “Carries on business”:– Depends on the context, and relevant factors are

those included in established legal definitions such as holding oneself out to others as engaged in the selling of goods and services.

• Court rejected CITT finding that AAi.Fostergrant Canada not carrying on business in Canada because of level of control exercised by FosterGrant US.



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AAi.Fostergrant Decision:CITT and FCA

• The CITT and the FCA both considered several factors in determining whether AAi.Fostergrant Canada carries on business in Canada, consistent with the CBSA Memorandum regarding interpretation of “purchaser in Canada.”

• Key Factors considered:– Fostergrant Canada is a wholly-owned subsidiary of

FosterGrant US;– Pricing guidelines determined by FosterGrant US;– Fostergrant Canada did not maintain inventory of goods;– FosterGrant US provided financial, banking and invoicing

services – no Canadian signing authority.



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2. Customs Enforcement:Ascertained Forfeiture

Customs Act, s. 124• Customs officer may serve a Notice of

Ascertained Forfeiture where goods not found or seizure would be impractical.

Customs Act, s. 135• If not satisfied with Minister’s decision

regarding the Notice, appeal by way of action in the Federal Court.



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Mercier v. Canada (Minister of National Revenue)

• Customs officials served Mercier with Notice of Ascertained Forfeiture alleging seizure of goods impractical and imposed a fine.

• Section 135 provides for a trial de novo as the court is not limited to consideration of evidence that was before the Minister (Mattu v. Canada).

• However, a Court will not readily vary the decision unless Minister failed to observe principle of natural justice, act within statutory discretion or the decision is based on an error in law.



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Reasons of the Federal Court:• Notice of Ascertained Forfeiture provision is a “potent

instrument” and an “extraordinary provision.”• Notice of Ascertained Forfeiture is not an alternative

recourse to seizing goods where seizure is not impractical.

• Found as a matter of fact that goods were:– Easily identifiable, including by serial number and colour-

coded;– Manufacturer marked, named, branded;– Used in the same place on a routine basis.





Reasons of the Federal Court (continued):• In addition to finding that the goods were identifiable,

the Court rejected the argument that seizure would have been impractical because it may have affected the viability of the enterprise, the very enterprise benefiting from goods alleged to have been smuggled in the context of business operations.





Reasons of the Federal Court (continued):• Focus is on finding and seizing smuggled goods in

Canada:– Section 125 of the Customs Act provides that a Notice of

Ascertained Forfeiture is automatically cancelled upon seizure of goods.

– Allows the person alleged to have contravened the Act to know which specific goods are at issue.




3. Customs: Verification –Rules of Origin

• Abbott Laboratories Limited v. Canada (Minister of National Revenue):– First NAFTA Rules of Origin case decided by the

Federal Court.– Abbott brought application for judicial review of

customs determination that Abbott’s import of nutritional products (Similac and Ensure) were not entitled to preferential tariff treatment under the NAFTA.

– Argued that the purported decisions of the customs officers were not “decisions” in legal or true sense.




Abbott Laboratories Limited v. Canada (Minister of National Revenue)

• Grounds for Review:– CCRA failed to comply with five statutory

requirements to:1. Provide a rationale in each decision issued to the

importer;2. Ensure each decision was issued by officers

designated by the Minister to issue such decisions;3. Ensure the designated officer who made the re-

determination of origin issued the decision;





• Grounds for review (continued):– CCRA failed to comply with five statutory

requirements to:4. Provide findings of fact and law to support notifications

to the exporter of re-determination of origin;5. Not to make tariff classification changes under the

umbrella of an investigation which was only intended as an origin verification.





• Federal Court dismissed the application:– Abbott had not yet exhausted “adequate

alternative remedies.”– Rejected the argument that the importer is

at a disadvantage based on the fact that the decisions disclose no rationale.





• Federal Court dismissed the application (continued):– Even though the assessment decisions disclose

no rationale as required by statute, Abbott knew the real reason for the decisions, therefore it would not be burdened by having to argue the same issues again because Commissioner’s review is a de novo review, proceeding as if the one which took place before the customs verification officer had not taken place.





Conclusion:• Ruling effectively precludes early ruling by

the Federal Court with respect to validity of decisions, requiring a complainant to follow the legislative route for appeal of a decision, whether or not there exists a “decision” to appeal.




4. Amendments to the NAFTA Rules of Origin

• Section 45 of Canada’s Customs Tariffprovides for preferential tariff treatment for goods originating in the US, Mexico or goods jointly-produced in the US and Mexico.




Amendments to the NAFTA Rules of Origin

• Based on joint statement on July 16, 2004 by Canada’s International Trade Minister, U.S. Trade Representative and Mexican Secretary of Economy:– Tentative agreement to make amendments to the

NAFTA Rules of Origin effective January 1, 2005.– Canada will implement the agreed changes

through amendments to the NAFTA Rules of Origin Regulations, enacted under the Customs Tariff.





• Most recent proposed changes regarding liberalization of the Rules of Origin applicable to:– Tea– Spices– Carrageenan (food thickener)– Seasonings– Precious metals– Speed drive controllers and their printed circuit assemblies– Loudspeakers– Household assemblies– Thermostats– Parts for various equipment and machinery– Toys





• Work will continue on proposals to liberalize the NAFTA Rules of Origin for:– Chemicals– Pharmaceuticals– Plastics– Rubber– Motor vehicles and their parts– Footwear– Copper– Any items for which all NAFTA countries have a MFN rate of

zero





• Proposed changes set out in Canada Gazette Notice dated August 7, 2004.

• Canada’s International Trade Policy Division, Department of Finance has requested comments from Industry on the proposed changes by September 28, 2004.




5. Canadian Anti-dumping and CVD Regime

• Canada’s SIMA and SIMR deal with the dumping of goods into Canada and subsidies received by foreign exporters.

• Canada’s subsidy and dumping legislation is based on the WTO’s Agreement on the Implementation of Article VI of the GATT 1994 and the Agreement on Subsidies and Countervailing Measures.




Canadian Anti-dumping and CVD Regime

• Definition of dumping:– Goods are “dumped” when they have

been sold into Canada at prices below the exporter’s home market selling price or below the exporter’s cost of production plus an amount for profit [s.2(1), SIMA].





• Definition of Subsidization:– A financial contribution by a government of a country other

than Canada…that confers a benefit to persons engaged in distribution, transportation, sale, export or import of goods, including domestic price supports [s.2(1), SIMA].

– Financial contribution includes direct transfer of funds, foregoing of amounts due to government, provision (by government or on its direction) of goods and services other than general infrastructure [s.2(1.6), SIMA].

– Specific subsidies: Limited to a particular enterprise, group of enterprises or sector [s.2(7.1)-(72.), SIMA].





• Definition of Subsidization (continued):

– Excludes exemptions from or remissions of taxes and duties applicable to goods sold domestically.

– “Benefit” to recipient is the measure of the subsidy.





• Canadian Trade Remedies:– Anti-Dumping duties: Equal to margin

of dumping.– Countervailing duties: Equal to

margin of subsidization.





• Canada Border and Services Agency (CBSA):

– Responsible for dumping and subsidy investigations.

• Canadian International Trade Tribunal (CITT):

– Responsible for inquiry into injury, threat of injury and causation.




6. Recent Canadian Dumping and Subsidy Investigations

against Chinaa) Certain Steel Fuel Tanksb) Outdoor Barbequesc) Carbon Steel and Stainless Steel

Fasteners




6.a) Certain Steel Fuel Tanks

Certain Steel Fuel Tanks - CBSA Statement of Reasons (Final Determination), August 18, 2004

DUMPING:• Normal values for the purpose of determining

dumping determined pursuant to s. 19(b), SIMA: Aggregate of cost of production of the goods, reasonable amount for administrative, selling and other costs and reasonable amount for profit.





CBSA Statement of Reasons (Final Determination), August 18, 2004 (continued):

DUMPING:• 98.1% of the goods exported from China were

dumped.• Goods were dumped by an overall weighted average

of 61.7% when expressed as a percentage of export price.

• As a result of CITT’s negative finding on injury, exporters no longer required to pay anti-dumping duties, and provisional duties paid since May 3, 2004 (Preliminary Determination of Dumping) will be refunded.





CITT Injury Inquiry (Statement of Reasons), September 15, 2004

• Dumping in Canada of the goods has not caused injury and is not threatening to cause injury to the domestic industry.





CITT Injury Inquiry (Statement of Reasons), September 15, 2004 (Continued):

NO MATERIAL INJURY:– Exported goods displaced a relatively small volume of

domestic sales. – No significant decline in domestic selling prices.– Canadian producer suffered overall decline in production

attributable primarily to market contraction in Canada in 2002:

• Although there would appear to be a correlation in time between the presence of dumped imports and the deterioration in domestic industry’s performance, this deterioration, insofar as it is not attributable to a market contraction, is mostly attributable to other non-dumping factors.





CITT Injury Inquiry (Statement of Reasons), September 15, 2004

NO MATERIAL INJURY (Continued):– Non-dumping factors:

• One Canadian producer’s virtual monopoly position as the sole domestic producer and the way in which it has conducted itself in the marketplace has caused some customers to seek alternative sources of supply, i.e. imports.





CITT Injury Inquiry (Statement of Reasons), September 15, 2004 (Continued):

NO THREAT OF MATERIAL INJURY:– No aggressive marketing in Canada by either manufacturers

or export agents in China or Chinese Taipei.– CITT is not convinced that there will be a significant rate of

increase of imports that is clearly foreseen and imminent.– SPI is a premium supplier in the market, and this is a major

consideration that leads buyers in the market to choose domestic over foreign goods, despite significant price differences.




6.b) Outdoor Barbeques

CBSA Statement of Reasons (Preliminary Determination), September 10, 2004

DUMPING:• Normal values estimated using the method set out in

s.19(b), SIMA, based on the aggregate of the cost of production of the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits.






DUMPING:• 94.2% of the goods exported from China

were dumped.• Goods were dumped by an overall weighted

average of 34.6% when expressed as a percentage of export price.

• Provisional anti-dumping duties ranging from 23.2% - 73.5% payable.






SUBSIDY:• In order to estimate a subsidy amount for the

preliminary determination the CBSA resorted to the use of “facts available” because sufficient information was not received from the Government of China and the exporters.

• Total estimated amount of subsidy equal to 16% of the export price of the goods.




6.c) Carbon Steel and Stainless Steel Fasteners

CBSA Notice of Preliminary Determination, September 10, 2004

• Preliminary determination of dumping and subsidy.• Statement of Reasons expected within 15 days

(September 27, 2004).

DUMPING:• Further to the Statement of Reasons (Initiation), May

13, 2004, normal values estimated using the method set out in s.19(b), SIMA.






DUMPING:• Estimated that 98% of goods from China and 99% of

goods from Chinese Taipei dumped.• Weighted average margin of dumping of 52% for

goods from China. Provisional duty of 52% payable on Chinese exports.

• Weighted average margin of dumping of 64% for goods from Chinese Taipei. Provisional duty of 64% payable on Chinese exports.






SUBSIDY:• Estimated that 100% of goods from China and the

Chinese Taipei have been subsidized• Amount of subsidy estimated to be 32% for goods

from China. Provisional duty of 32% payable on subsidized goods from China.

• Amount of subsidy estimated to be 7% for goods from Chinese Taipei. Provisional duty of 7% payable on subsidized goods from Chinese Taipei.




Chinese Subsidies

• Programs and Incentives under investigation in Outdoor Barbeques and Steel Fastenerscases:– Special economic zone incentives– Grants providing for export performance and employing

common workers– Preferential loans– Loan guarantees– Income tax credits, refunds and exemptions– Relief from duties and taxes on inputs– Reductions in land use fees– Purchase of goods from state-owned enterprises




Treatment of China as a Market Economy

• Canada used to treat China as a non-market economy in anti-dumping investigations.

• CBSA Policy, June 2004:– Canada now presumes that the Chinese exporter

is operating in a market economy unless evidence suggests otherwise.

– This is consistent with recent dumping investigations in which the method prescribed by s.19(b), SIMA, has been used to determine normal values.




Treatment of China as a Market Economy

CBSA Policy, implemented June 2004:• If Canadian complainant proves non-market

conditions, pursuant to SIMA, s.20, normal values will be based on:– Price of like goods sold by producers in a

surrogate country, adjusted for price comparability;

– Cost of producing and selling like goods plus a reasonable amount for profit in a surrogate country; or

– Selling price in Canada of like goods imported from a surrogate country.




7. Canada-US Softwood Lumber Dispute – WTO

Challenges• WTO Challenges brought by Canada:

a) United States - Final Determination of Sales at Less than Fair Value (dumping)

b) United States - Final Countervailing Duty Determination with respect to Certain Softwood Lumber from Canada (subsidy)

c) United States – Final Determination of Threat of Injury




7.a) United States - Final Determination of Sales at Less

than Fair Value• US Department of Commerce

prescribed dumping duties for Canadian exporters ranging from 2.18% - 12.44%, with an “all-others” rate of 8.43%.





than Fair Value• WTO Panel found US method for

determining margins of dumping which incorporated practice of “zeroing” to be inconsistent with WTO obligations.

• WTO Appellate Body upheld Panel decision on August 11, 2004.





than Fair Value• Zeroing:

– Assigning a margin of zero to certain goods for which the export price exceeds the normal value (good with a negative dumping margin).

– Prevents the negative margin for one category of goods from offsetting a margin of dumping for another category of goods.

– Results in higher dumping rates, therefore higher anti-dumping duties.




7.b) United States – Final Countervailing Duty Determination

• US Department of Commerce calculated a single country-wide subsidy rate of 19.34% for all producers and exporters of softwood lumber from Canada.





• WTO Appellate Body heard appeal from the Panel decision on two main issues:

– Financial Contribution– Benefit





• Financial Contribution– Appellate Body upheld Panel finding that

Canada providing a financial contribution in the form of a “provision of a good” by providing standing timber to harvesters through the stumpage programs.




7.b) United States – Final Countervailing Duty Determination• Benefit:

– Provision of goods does not confer a benefit unless provision is made for less than adequate remuneration, determined in relation to prevailing market conditions for the goods in the country of provision.

– Appellate Body reversed finding and ruled in favour of US that investigating authority not required to use private market benchmarks in Canada when they are distorted by predominant role of government in the market.





• Benefit (continued):– Appellate Body did not determine whether US

determination using cross-border benchmark was consistent with WTO obligations due to insufficient factual findings.

– Appellate Body also cautioned that countervailing measures may be used only to offset subsidies, not to offset differences in competitive advantages between countries.




7.c) United States – Final Determination of Threat of Injury

• On March 22, 2004 WTO Panel held that the US determination of threat of injury was not consistent with WTO obligations for the following reasons:– Finding of a likely imminent substantial increase in

imports is not a finding which could have been reached by an objective and unbiased investigating authority in light of all the factors.

– Causal analysis is based on a finding of a likely substantial increase in imports, which is itself, not consistent with WTO obligations.




7.c) United States – Final Determination of Threat of Injury

• On August 23, 2004 the US ITC gave notice of the scheduling of a proceeding under the Uruguay Round Agreements Act for a determination that would render the ITC’s actions in connection with the softwood lumber injury investigations not inconsistent with the WTO Panel’s findings of March 22, 2004:

– Proceeding only involves issues related to the WTO dispute settlement findings and does not involve issues that were not in dispute in the WTO proceedings or on which the WTO Panel found the US in conformity with its WTO obligations.

– ITC will hold a hearing in connection with this proceeding on October 13, 2004.




Byrd Amendment

• Canada has challenged the US Continued Dumping and Subsidy Offset Act of 2000, (Byrd Amendment), which allows US producers who support petitions for dumping and/or subsidy investigations to receive duties collected as a result of the anti-dumping or countervailing duty orders.

• A WTO Panel held that US payments are not consistent with US obligations under the WTO Agreements governing dumping and subsidies.




Byrd Amendment

• US did not bring its measures into conformity by December 2003 deadline set by the WTO.

• On January 26, 2004 Canada and seven other WTO Members requested retaliation authorization from the WTO to which the US objected.

• On August 31, 2004 WTO arbitrators reached a decision which will allow the WTO Members challenging the Byrd Amendment to retaliate by up to $150 million against the US:– Canada’s retaliatory authorization will allow Canada to

retaliate up to the annual level of countervailing and anti-dumping duties on Canadian goods disbursed under the Byrd Amendment, multiplied by a factor of 0.72.




8. Canada-US Softwood Lumber Dispute –

NAFTA Challengesa) Challenge by Canada of US Final

Determination of Subsidyb) Challenge by Canada of US Final

Determination of Dumpingc) Challenge by Canada of Final Threat

of Injury Determination




8.a) US Final Determination of Subsidy

• NAFTA Panel ruled on June 7, 2004 on the first US remand: US must review its subsidy calculations on Canadian lumber exports, resulting in an average 18.7% countervailing duty.

• US second remand determination dated July 30, 2004: Recalculated aggregate subsidy rate applicable to all Canadian lumber exports, resulting in an average subsidy rate of 7.82%.




8.b) US Final Determination of Dumping

• NAFTA Panel ruled on March 5, 2004 on the first US remand: US must review its dumping calculations, resulting in anti-dumping duties of 2.22% - 12.36% with an “all others” rate of 8.07%.

• US second remand determination dated April 21, 2004: US undertook recalculations for three companies resulting in reduced dumping margins for these three companies, Tembec, West Fraser Mills and Slocan Forest Products.

• However, “all others” rate up from 8.07% to 8.85%.




8.c) US Final Threat of Injury Determination

• NAFTA Panel ruled on August 31, 2004 on the second US remand: ITC threat of injury findings not supported in fact. Panel issued an order that the ITC ruling be reversed to find no threat of injury. Panel was of the opinion that remanding the decision to the US for a third time would be futile.

• On September 10, 2004, the ITC issued, under protest, a negative finding on threat of injury further to the WTO ruling of August 31, 2004.




8.c) US Final Threat of Injury Determination

• IT Can site re: Sept. 10 decision of ITC, issued negative threat finding under protest

• Extraordinary Challenge Proceedings under NAFTA




9. WTO Negotiations

• July 31, 2004 Framework Agreement– To guide the next set of trade negotiations in the

Doha Round commencing September 2004– Negotiations in the areas of:

• Agriculture• Non-agricultural market access• Trade in services• Trade Facilitation• Trade Remedies




WTO Negotiations - Agriculture

• Eventual elimination of export subsidies through substantial reductions:– US and European Union have agreed to first-year reductions

of subsidies by 20%.• Improved market access for all agricultural products

including:– Grain– Oilseeds– Red meat– Horticultural products

• Agri-food sector may negotiate increased marketing opportunities.




10. WTO Dispute Settlement

• United States – Subsidies on Upland Cotton:– Complaint by Brazil that US providing prohibited

and actionable subsidies to US producers, users and exporters of upland cotton.

– Alleged financial contribution by the US government or income price support conferring a benefit.

– Each of the alleged subsidies is specific to US producers of primary agricultural products and/or the upland cotton industry.




WTO Dispute Settlement

• United States – Subsidies on Upland Cotton (continued):– Alleged significant price depression and

suppression in upland cotton markets in Brazil and elsewhere between 1999-2002.

– Alleged displacement or impediment of Brazilian upland cotton exports in third country markets between 1999-2002.

– Alleged increase in the US’ world share of upland cotton by a percentage in violation of the WTO Subsidies and Countervailing Measures Agreement.





• United States – Subsidies on Upland Cotton (continued):– WTO Panel decision reached on June 18,

2004.– Panel Report issued on September 8,

2004.





• United States – Subsidies on Upland Cotton, WTO Panel Report, September 8, 2004:– Certain US domestic support measures granting support to a

specific commodity, certain user marketing payments to domestic users of upland cotton and certain export credit guarantees do not satisfy WTO obligations.

– The effect of the mandatory price-contingent United States subsidy measures – marketing loan programme payments, user marketing payments, and other payments - is significant price suppression in the same world market constituting serious prejudice to the interests of Brazil.

– The effect of certain US subsidy measures is an increase in the United States' world market share.

– Recommends that US bring its measures into conformity with WTO obligations, including withdrawal of subsidies without delay.




WTO Dispute Settlement• Canada – Measures Relating to Export of

Wheat and Treatment of Imported Grain– WTO Appellate Body ruled on August 30, 2004– Appellate Body found the following Canadian statutory

requirements relating to grain segregation and rail revenue cap inconsistent with GATT 1994:• Elevator operators request for authorization prior to

accepting foreign grain not subject to same quality assurance as Canadian grain.

• Operators to obtain authorization to mix Canadian with foreign grain.

• Prescribed railway company’s revenue for grain movement not to exceed maximum revenue entitlement.

• If revenue does exceed the company’s maximum revenue entitlement for that year, the company shall pay out the excess amount and any penalty that may be specified in the regulations.





• Canada – Measures Relating to Export of Wheat and Treatment of Imported Grain– Appellate Body upheld earlier Panel ruling that

CWB’s legal structure and mandate do not create an incentive for the CWB to make sales which are not solely in accordance with commercial considerations, in accordance with the GATT 1994 rule regarding STEs.





• Canada – Measures Relating to Export of Wheat and Treatment of Imported Grain– Canada intends to bring the offending measures

into compliance with WTO obligations.– Canadian government will continue to promote the

view that none of the commitments set out in the WTO Framework Agreement for upcoming negotiations will adversely affect the ability of producers to market their products through the CWB.

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