Canadian steel producers and their workers have launched a full court press to persuade the Minister of Finance to introduce without delay “permanent” safeguard measures on imports of non-NAFTA steel. This is a popular initiative with politicians of many stripes supporting it only a few months before the next Federal Election.
But extending safeguards for certain steel products would fly in the face of Canadian International Trade Tribunal findings and Canada’s international obligations. Those obligations cannot be ignored with impunity. Other Canadian stakeholders, likely farmers and ranchers, will pay for Canadian intransigence.
Safeguards are extraordinary WTO measures because they are imposed on fairly-traded goods – goods that would otherwise benefit from the tariff concessions and trade liberalization resulting from the GATT/WTO. Fairly traded imports are not dumped or subsidized.
While the WTO rules permit safeguard action to limit fairly traded but injurious imports, the pre-conditions, particularly those relating to the principal cause of serious injury, are very detailed and must be applied rigorously.
After extensive public hearings and analysis, the Canadian International Trade Tribunal (CITT) concluded that two products – heavy plate and stainless steel wire – met the WTO serious injury requirements which would justify imposition of definitive safeguards. Five products – hot-rolled sheet, pre-painted steel, rebar, energy tubular and wire rod – did not.
These negative findings end the inquiry for the five classes of goods concerned. There is no provision in the WTO Safeguards Agreement or the Customs Tariff to permit Canada to reject or ignore the negative injury determinations of the independent investigating authorities, in Canada’s case the CITT.
Clearly, the Canadian steel industry is in a difficult state. Trump tariffs have limited Canadian steel exports to Canada’s most important export market. But there is no scope in the WTO Agreements or the Canadian Customs Tariff to provide “permanent” safeguards on the five uninjured classes of steel products.
The WTO Appellate Body has explained that safeguard measures — as an exception to the disciplines of the GATT/WTO that favour liberalized trade — may only be imposed if all of the requisite conditions are fully met. Further, interpretation of each requisite element must be guided by the fact that safeguards measures are exceptional. Thus, rather than a liberal interpretation of these obligations, a narrow and strict interpretation must be applied.
Serious injury is defined as “a significant overall impairment to the position of a domestic industry”. This is a very high standard, much higher than is required in an anti-dumping inquiry. The Appellate Body in U.S. – Lamb Meat explained:
“… the injury standard for application of a safeguard measure should be higher than the injury standard for anti-dumping or countervailing measures since, as we have observed previously:
[t]he application of a safeguard measure does not depend upon “unfair” trade actions, as is the case with anti-dumping or countervailing measures. Thus, the import restrictions that are imposed on products of exporting Members when a safeguard action is taken must be seen, as we have said, as extraordinary. And, when construing the prerequisites for taking such actions, their extraordinary nature must be taken into account.”
The provisional safeguards introduced on October 25, 2018 on the five products at issue cannot be continued beyond the 200 day term, unless the competent authorities of a member reaches a finding of serious injury or threat of serious injury. In Canada, the competent authority is the Canadian International Trade Tribunal.
WTO obligations in this connection are reflected in Canadian law in Section 56(2) of the Customs Tariff which states that “a provisional safeguard ceases to have effect at the end of the two hundredth day after the day on which the order is made unless, before the order so ceases to have effect, the Canadian International Trade Tribunal reports to the Governor in Council, on the basis of an inquiry made under section 20 or 26 of the Canadian International Trade Tribunal Act, that the goods described in the report of the Minister are being imported from a country named in the report under such conditions as to cause or threaten serious injury to domestic producers of like or directly competitive goods.”
Article 55(4) of the Customs Tariff requires the Government to seek the views of the Canadian International Trade Tribunal and obtain a serious injury finding as a pre-condition to imposing definitive safeguards.
The CITT Report and findings of April 3, 2019 should be the final word on the provisional safeguards.
The WTO does not contemplate “permanent” safeguards. However, such measures may be introduced for a short period of time if the necessary preconditions are met. Safeguards are subject to annual liberalization. The quantitative limits on imports must be increased and over quota tariffs reduced.
There have been suggestions that Ministers could use Section 53(2) of the Customs Tariff as a vehicle to extend the safeguards. This authority is designed to deal with breaches of trade agreements which adversely affect Canadian interests.
Canada’s trade agreement rights with respect to injury caused by fairly traded imports are found in the WTO Agreement on Safeguards. No WTO member can unilaterally determine that another member is in breach of its obligations. This is to be determined by the Dispute Settlement Understanding through the deliberations of Panels and Appellate Body review.
If Canada were to unilaterally declare steel imports to be subject to safeguard measures without affirmative CITT findings, Canada’s exports would be in the bulls-eye.
Canada values and must rely upon the WTO rules-based system. The rules-based system is under challenge and attack by the United States. Joining into that attack is clearly not in Canada’s interests.
Maintaining safeguard measures without a clear WTO cover in the form of serious injury findings will not be a cost-free option for Canada. Article 8:2 of the Safeguards Agreement provides that in such circumstances, other WTO members would be free:
“to suspend … substantially equivalent concessions or other obligations under GATT 1994, to the trade of the Member applying the safeguard measure, the suspension of which the Council for Trade in Goods does not disapprove.”
In the vernacular, other WTO members would have a right to retaliate against unwarranted safeguard measures. This right does not require prior approval of a WTO dispute settlement panel.
Five WTO members — Indonesia, Korea, Russia, Taiwan and Turkey — have already retaliated against the E.U. for its steel safeguards. Retaliation is unlikely to hit Canadian steel exports. Little Canadian steel is exported outside North America. Likely targets will be in the agricultural sector where Canada is already experiencing trade disruption on canola (China), durum wheat (Italy) and pulses (India).
Eliminating the Trump tariffs on steel and aluminum is a high priority for Canada. Reviewing and modifying the targets of Canada’s initial round of retaliatory tariffs to more sensitive products will hopefully help.
The Government will need to be imaginative in helping the steel industry and its workers. It must, however, respect Canada’s international trade obligations lest the pain be transferred to other Canadian stakeholders who will not likely be prepared to take one for the team.
Peter Clark, president of Grey, Clark, Shih and Associates, is one of Canada’s leading international trade strategists. His clients in Canada and around the world include governments, corporations and trade associations. He is a frequent media commentator and columnist. Follow him on Twitter at @jpclark14