LexSage

Canada to impose emergency steel safeguards

on 7 steel products & will conduct

injury inquiry while imposing surtaxes

Written By: Cyndee Todgham Cherniak

Date: October 11, 2018

On October 11, 2018, Canada’s Department of Finance announced that effective October 25, 2018, Canada will be imposing emergency tariff rate quotas on 7 categories of steel products.  The Department of Finance has prepared a Report under section 55 of the Customs Tariff to implement the emergency steel safeguard tariff rate quotas and the tariff rate quotas were approved by the Trudeau Cabinet. This is the first time section 55 of the Customs Tariff has been used in Canada.  The surtaxes are imposed before the Canadian International Trade Tribunal determines if the protection is warranted. In other words, affected companies must particilate in the Tribunal injury inquiry to make their views known about whether the emergency measures are even needed.

The Department of Finance Report indicates that certain steel goods are being imported into Canada in increased quantities.

The Report further finds that:
“…the importation in increased quantities of steel goods is the result of the effect of the obligations, including tariff concessions, incurred by Canada under WTO agreements and of unforeseen developments, including global overcapacity in steel production and the fact that a number of WTO members have taken or are considering taking measures to restrict importation of steel into their markets, which appears to have caused or threaten to cause significant trade diversion into Canada.”

What products are covered by Canada’s steel safeguard?
Canada is imposing emergency tariff rate quotas of 7 categories of steel products:

1. Heavy Plate
2. Concrete Reinforcing Bar;
3. Energy Tubular Products;
4. Hot-Rolled Steel;
5. Painted Steel;
6. Stainless Steel Wire; and
7. Wire Rod.

For more information as to the goods covered by these general headings, please refer to the Backgrounder.  Also, refer to Customs Notice 18-17.  Also refer to the Canadian International Trade Tribunal Notice of Commencement of Safeguard Inquiry – Certain Steel Products.

Are any countries excluded?

Yes. The following countries are excluded:

1. The United States (U.S steel is covered by existing countermeasures introduced on July 1, 2018);
2. Mexico (partial exclusion covers heavy plate, rebar, hot-rolled steel, painted steel and stainless steel wire rod; energy tubular products and wire rod is subject to the steel safeguard measures);
3. Chile
4. Israel;
5. Developing Countries (such as Vietnam, except that rebar from Vietnam is subject to the steel safeguard measures) - the list of the developing countries is set out in Customs Notice 18-17.

It is important to note that Ukraine, Moldova, Pakistan, and the Philippines are excluded from the emergency safeguard measures.

What will be the Tariff Rate Quota?
Canada is imposing a surtax of 25% on imports above certain volume levels.  But, the quotas are not simple.  The quotas are based on:

1. the type of steel product (7 categories);
2. 50 day time periods; and
3. the country of export.

The quotas during the 220 day safeguard inquiry are as follows:

Product	Quota for 220 day period (MTs)
Heavy Plate	51,672
Concrete Reinforcing Bar	141,328
Energy Tubular Products	257,392
Hot-Rolled Sheet	61,196
Pre-Painted Steel	46,540
Stainless Steel Wire	1,868
Wire Rod	46,052

The quotas will be applied on 50 day cycles:

Product	First 50 days	Second 50 Days	Third 50 Days	Final 50 days
Heavy Plate	12,918	12,918	12,918	12,918
Concrete Reinforcing Bar	35,332	35,332	35,332	35,332
Energy Tubular Products	64,348	64,348	64,348	64,348
Hot-Rolled Sheet	15,299	15,299	15,299	15,299
Pre-Painted Steel	11,635	11,635	11,635	11,635
Stainless Steel Wire	467	467	467	467
Wire Rod	11,513	11,513	11,513	11,513

Canada will impose a quantitative limit on countries (one country cannot fill the entire quota).

For each steel product category, a limit is imposed on the share of the total quota that may be filled by a single country. This limit is equal to the highest import share from a single country based on historical import volumes for that product. If the volume of imports of a product category from a single country reaches the limit, then all subsequent imports of that product category from the country will be subject to the surtax for the remainder of the 200-day provisional safeguard period.

Who Is Affected?

Importers will have to pay the surtaxes on import volumes above the 50 days quota limit.  The quotas will be applied on a first come first served basis.  As a result, any importer will not know if there is quota available.  According to Customs Notice 18-17, paragraph 6:

“Importers may request shipment-specific import permits (specific permits) from Global Affairs Canada, which will be valid for 14 days. Goods for which an importer obtained a specific permit, valid at the time of accounting, are exempt from the applicable safeguard surtax. Imports of goods that do not have a specific permit, or are in excess of the quantity of an import permit at the time of accounting, are subject to the safeguard surtax.”

What this means is that overseas shipments may be on the water when the import permit is applied for.  The 14 day limit means that the goods must land within 14 days of the shipment specific import permit.

End users will likely be charged the 25% surtax on most steel orders as there is no guarantee that a particular importer will be able to bring in a particular steel product without having to pay the surtax.

Construction industry is particularly affected.  The surtaxes on rebar and ASTM A53-B will increase the costs to construct a new building.

The petroleum pipeline industry is affected by the surtaxes on energy tubular goods.
The shipbuilding industry is affected by surtaxes on heavy plate.

Interestingly, the fabricated industrial steel components manufacturers who use plate (the steel industry) and the fastener manufacturers in Canada who use imported write rod will be affected by the surtaxes.  Both of these industries benefit from antidumping protection.

What Happens at the Canadian International Trade Tribunal (CITT)?

On October 10, 2018, the Governor-in-Council issued Order in Council 2018-1275 and made An Order Referring to the Canadian International Trade Tribunal, for Inquiry into and Reporting on, the Matter of the Importation of Certain Steel Goods directing the CITT to commence a safeguard inquiry.

The CITT is an independent, Canadian quasi-judicial administrative tribunal that adjudicates a variety of international trade cases and matters. The CITT is the place to go to receive a fair, timely, transparent and effective resolution of a trade-related dispute and/or government-mandated inquiry/dispute, provided that the trade-related dispute is within an area of the Tribunal’s jurisdiction.

On October 11, 2018, the CITT has commenced a safeguard inquiry (GC-2018-001).  The CITT will look into whether the safeguard measures are warranted.  The CITT will determine whether any of the 7 categories of steel products are being imported into Canada in such increased quantities and under such conditions as to be the principle cause of serious injury or threat thereof to Canadian producers of like or directly competitive goods.

The CITT’s proposed schedule is as follows:

• October 11, 2018 – Notice of Commencement of inquiry, questionnaires posted online; [the questionnaires are posted on the CITT website]
• October 29, 2018 – Notices of participation are due;
• October 31, 2018 – Replies to questionnaires are due and a case management conference will be held;
• November 26, 2018 – The CITT will distribute the record;
• December 6, 2018 (noon) – case briefs are due from all parties (there will be page limits imposed);
• December 13, 2018 (noon) – reply briefs are due from all parties;
• December 17, 2018 – The CITT will decide which witnesses will testify;
• December 27, 2018 – Deadline for procedural and preliminary matters;
• January 3-22, 2019 – Public Hearings in Ottawa.

Who should participate?
Importers of the 7 steel products, users of the 7 steel products, foreign producers of the 7 steel products and foreign governments should participate in the CITT proceedings. The CITT has posted questionnaires for foreign producers, importers and domestic producers to complete.  The CITT has not posted a purcaser's questionnaires or end-user questionnaire.

Foreign producers and importers (and domestic producers) must hire outside Canadian counsel to be able to make argumetns through counsel about information on the confidential record. Foreign lawyers can only access confidential information through Canadian lawyers and trade consultants approved by the CITT.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com.

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