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VI. Public Interest, Lesser Duty and Short Supply

(I) The Present System

SIMA contains a general provision which allows the CITT to recommend the reduction or elimination of anti-dumping duties or countervailing duties if it is considered to be in the public interest. However, since its establishment in 1984, this provision has been used infrequently.

Section 45 of SIMA provides that, in the event of a finding of injury, "persons interested" may make representations to the CITT on the question of whether the imposition of duties is in the public interest. If the CITT is of the opinion that there is a public interest concern, it will recommend a reduction or elimination of duties in a report to the Minister of Finance. The Minister of Finance may, on the basis of such a report, recommend to the Governor in Council that duties be reduced or eliminated.

SIMA in its current form does not define public interest. It also provides little direction as to how the Tribunal should interpret what public interest is. However, a "person interested" is defined in SIMA regulations (s.41) to include: producers, purchasers, sellers, exporters and importers of the subject goods or like goods to the subject goods, officials of the federal Competition Bureau, consumers and consumer associations.

In conducting a public interest investigation, the CITT uses a two-step approach. First, the Tribunal receives submissions from parties on the issue of whether to initiate an investigation or not. Second, where the Tribunal initiates a public interest investigation, it gathers relevant information and holds a public hearing at which witnesses, including those called by the Tribunal, are examined. As a court of record, the Tribunal also has the power to subpoena witnesses and require the production of documents.

There are two concepts closely related to the matter of public interest. First is the lesser-duty approach. This concept is more specific than public interest and linked to the concept of injury. The recent WTO Anti-dumping Agreement (Article 9.1) states that "it is desirable that the imposition of the duty be less than the margin [of dumping], if such lesser duty would be adequate to remove injury to the domestic industry". However, SIMA does not contain a lesser duty provision.

Second is the issue of different treatment under trade legislation for goods in short supply. Presently there is no effective mechanism in SIMA to allow for the exemption of goods from anti-dumping/countervailing duty orders in domestic short supply situations. While section 14 of SIMA allows the Governor in Council to make regulations exempting any goods from the application of the Act, this provision was not designed to provide expeditious, time-limited relief in temporary short supply situations.

(II) Summary of Proposals and Recommendations

Public Interest

Of the many comments received on the issue of "public interest", none objected to the provision or thought that this section of the law should be removed. Most observed either that the current mechanism functions reasonably well, or that the legislation should be revised to strengthen the application of public interest. For example, the Canadian Pasta Manufacturers Association stated: "The Canadian system ensures that the public interest is taken into account";(12) while the Automotive Parts Manufacturers Association argued the opposite, noting that the public interest provision was not adequate to prevent some producers from abusing the market protection provided through anti-dumping actions.(13)

(12) Brief of Canadian Pasta Manufacturers Association of October 30, 1996.
(13) Brief of the Automotive Parts Manufacturers Association of October 30, 1996, Appendix A.

Some offered proposals for improvements. For example, it was suggested by the National Dairy Council of Canada and the Brewers Association of Canada, among others, that a list of criteria or factors should be adopted in order to better guide the CITT as to the meaning of public interest and to indicate the intended scope of such investigations. Such criteria would need to address an inclusive list of issues such as the impact on competition in Canada, the price effects on products in question, employment effects, or the economic gains and losses for industry and the economy in general.

In oral testimony, former CITT Vice-Chairman, Mrs. K.E. MacMillan observed: "The statute provides no guidance as to what the public interest is. The criteria for public interest should be articulated more clearly, in a broader sense."

Proposals were advanced to strengthen the interaction with the Competition Bureau to ensure that trade remedy actions do not run at cross purposes with competition policy objectives. The role of the Competition Bureau would be to provide advice on the impact of specific trade remedy actions on competition in the domestic market. Central to such an assessment would be the impact on domestic competition and on the competitiveness of downstream industries.

This issue of downstream interests was remarked upon in a number of the submissions. There were diverging opinions on this matter. The Alliance of Manufacturers and Exporters Canada argued that downstream industries should be more fully made aware of the potential impact on their interest of CITT decisions in order to facilitate more complete participation by all affected parties in the process. Others suggested that removal of injury to the domestic industry is paramount and protection to downstream interests should not override that purpose.

Taking these various views into account, the Sub-Committees are persuaded that public interest plays an essential role in Canadian trade remedy legislation and that the law needs to be clarified for it to work properly. Therefore, the Sub-Committees recommend that a non-exclusive list of factors be included in section 45 of SIMA that would guide the CITT respecting whether and how to conduct a public interest inquiry. (13)

Public interest is a term that should receive as clear an operational definition as do the terms dumping or subsidy, which are defined in law, or the term injury, which is largely defined in regulations. Factors that might form a test for public interest could include: significant damage to downstream users; problem of access to inputs due to imposition of the full duty; restriction of competition in domestic market; significant impact on choice or availability of products to consumers; elimination of competition in the marketplace; and so forth.

It is understood that any criteria or factors expressed in legislative language would take precedence over previous CITT practice, such as the "exceptional basis" test applied in the Grain Corn case.(14)

(14) Canadian Import Tribunal, Report on the Public Interest: Grain Corn (1987).

In applying section 45 of SIMA, the CITT faces two decisions: first, a threshold decision on whether to initiate a public interest investigation; and second, the determination of the outcome of any investigation initiated. The threshold decision should be based-as is the case, by analogy, with a decision to initiate an anti-dumping or countervailing duty investigation-on whether there is sufficient evidence of adverse impact on public interest. In keeping with the formal, quasi-judicial nature of CITT proceedings, the Sub-Committees recommend that the CITT's decision, that an anti-dumping or countervailing duty might not be in the public interest, should be a formal decision reviewable by a Federal Court. The level of any duty reduction should continue as at present in section 45 of SIMA to be a report to the Minister of Finance. (14)

Lesser Duty

The issue of lesser duty was reflected in testimony before the Sub-Committees. The Canadian Importers Association stated: "In injury situations, the level of dumping duty (normal value) should be only that which is sufficient to remove the injury."(15)

(15) Brief of the Canadian Importers Association of October 23, 1996.

A fuller statement was provided by the Alliance of Manufacturers and Exporters Canada: " . . . the Tribunal should be authorized in appropriate circumstances, under section 45, to calculate a lesser duty in order to achieve a margin of dumping sufficient only to bring the low foreign price to the level of the Canadian price (presuming that price covers costs and results in a profit). Accordingly, margins of dumping often found by Revenue Canada in percentages such as 50%, 100% or even more, could be replaced by much lower numbers reflecting more closely the difference between the objectionable foreign price and the Canadian price level. However, until other WTO countries adopt such a rule, Canada cannot be in a position of being the only country, or one of few countries adopting this practice."(16)

(16) Brief of the Alliance of Manufacturers and Exporters Canada of November 20, 1996.

In fact, other countries do apply the lesser duty rule. This includes Australia, New Zealand, and the largest trader in the WTO, the European Union. Unfortunately, Canada's closest competitor, the United States, does not. This raises the question to what extent Canada should model its trade remedy legislation after the United States, as some proposed in testimony before the Sub-Committees.

The Sub-Committees find this question has been addressed compellingly by the Competition Bureau, as follows:

The Canadian approach to remedies should reflect the differences between Canadian and U.S. economic realities, viz: (i) trade accounts for a much greater percentage of our national income and, therefore, disruptions of trade flows are likely to be far more costly to Canadian consumers and industrial users than in the U.S.; (ii) Canada has more concentrated production structures and as a consequence, duties are more likely to permit protected producers to exercise market power and raise prices and profits beyond costs with implications for both efficiency and fairness; and, (iii) the high foreign ownership of many Canadian industries implies that the benefits of protectionist actions often accrue to foreign shareholders while the costs are incurred by Canadian consumers and participants in user industries.(17)

(17) Brief of Competition Bureau, Industry Canada, of November 12, 1996.

Recent research by the Organization for Economic Co-Operation and Development (OECD) supports the Competition Bureau. In a recent study on globalization, the OECD notes that: "International sourcing of parts and materials is a major feature of global production systems . . . the ratio of imported to domestic sourcing in the latest period reached 50% for Canada and 35-40% for France, Germany and the United Kingdom. By comparison, the ratio was 13% for the U.S. and 7% for Japan."(18)

(18) Globalization of Industrial Activities: Background Report, COM/DSTI/IND/TD(93)109/REV1, January 28, 1994, p. 16.

The conclusion is that Canada has a very different economy from that of the United States, and consequently may need different economic policies. The United States can more easily afford the downstream costs of anti-dumping and countervailing duty actions because it is less dependent than Canada on international sourcing.

Therefore, the Sub-Committees recommend that the lesser duty concept as provided in Article 9.1 of the WTO Anti-dumping Agreement be incorporated in section 45 of SIMA provisions for public interest. (15)

Short Supply

Both the Automotive Parts Manufacturers Association and the Alliance of Manufacturers and Exporters Canada supported the enactment in SIMA of an exemption for short supply situations. They argued that by subjecting materials that are in short supply to an investigation and duties unduly hampers those Canadian industries that rely on these materials, causing unnecessary hardship, while providing no real benefit to the local producers.

It was proposed that a system of temporary remission or suspension of anti-dumping/countervailing duties by Revenue Canada could be ordered covering only the period of the shortage. Any decision-making procedure would need to be expedited with strict limitations on timeframes and documentation. The statutory language would need to ensure that controls are kept in place to keep the "period of shortage" open for only specific quantities of specific products for as limited a time as possible.

It should be noted that the equivalent to a short supply exemption exists in European Union, and that a short supply provision has been considered but not implemented by the U.S. Congress.

Short supply is a relatively recent concept on which further analysis is needed. The Sub-Committees recommend that the Minister of Finance consider amending SIMA to allow for the temporary exemption of goods from anti-dumping/countervailing duty orders under conditions of domestic short supply. (16)

A short supply amendment to SIMA could be implemented by affording domestic complainants initial recourse to the Deputy Minister of National Revenue, who would have new statutory authority to determine whether a short supply complaint was well founded, and if so, recommend to the Minister of Finance that the collection of anti-dumping/countervailing duties be temporarily suspended. Factors that should be given consideration are whether such a determination should have retroactive effect, and whether the determination would only be applicable to specific importations by the parties who requested the ruling or be generally applicable for all importers.