THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
OTTAWA, Wednesday, June 19, 2019
The Standing Senate Committee on National Finance met this day at 1:30 p.m. to study the subject matter of Bill C-101, An Act to amend the Customs Tariff and the Canadian International Trade Tribunal Act; and, in camera, for the consideration of a draft report.
Senator Percy Mockler (Chair) in the chair.
The Chair: I welcome you to this meeting of the Standing Senate Committee on National Finance. My name is Percy Mockler, senator from New Brunswick and chair of this committee.
I wish to welcome all those who are in the room and all Canadians who are watching us on television or online.
As a reminder to those watching, the committee hearings are open to the public and also available online at sencanada.ca.
At this time, I would like to ask the senators to introduce themselves.
Senator Klyne: Marty Klyne, Saskatchewan.
Senator Forest: Welcome. Éric Forest from the Gulf region of Quebec.
Senator Pratte: André Pratte from Quebec.
Senator Forest-Niesing: Good afternoon and welcome. Josée Forest-Niesing from northern Ontario.
Senator M. Deacon: Marty Deacon, Ontario.
Senator Boehm: Peter Boehm, Ontario.
Senator Neufeld: Richard Neufeld, British Columbia.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
The Chair: I also want to introduce the clerk of the committee, Gaëtane Lemay, and our two analysts, Alex Smith and Shaowei Pu, who team up to support the work of our committee.
Honourable senators, this afternoon we begin our study of the subject matter of Bill C-101, An Act to amend the Customs Tariff and Canadian International Trade Tribunal Act.
Bill C-101 is still before the other place, but at yesterday’s Senate sitting, the chamber gave us the mandate to study its subject matter. We must table our report tomorrow at the latest.
To the witnesses, thank you very much for accepting our invitation and being here to explain Bill C-101.
Today we have before us officials from the Department of Finance: Mr. Patrick Halley, Director General, International Trade Policy Division, International Trade and Finance.
We’re also joined by Michèle Govier, Senior Director, Trade Rules, International Trade Policy Division, International Trade and Finance, at the Department of Finance Canada.
We also welcome an official from Global Affairs Canada: Mr. John Layton, Executive Director, Trade Remedies and North America Trade.
The officials will make an opening statement. It will be followed by questions from members of the committee.
I have been informed by the clerk that there will be one presenter, and it’s Mr. Halley.
Mr. Halley, the floor is yours.
Patrick Halley, Director General, International Trade Policy Division, International Trade and Finance, Department of Finance Canada: Thank you, Mr. Chair. I’m pleased to be here to speak about Bill C-101, which amends the Customs Tariff and the Canadian International Trade Tribunal Act.
Before describing the proposed amendments in the bill, we believe that we should mention the current circumstances that led to the development of the bill.
Global safeguards are trade measures that may be imposed under World Trade Organization rules and Canadian law, where there’s evidence that an increase in fairly traded imports has caused or is threatening to cause serious injury to domestic producers.
In October 2018, the government imposed provisional safeguards for a period of 200 days on imports of seven steel product categories: heavy plate, concrete reinforcing bars, energy tubular products, hot-rolled sheets, pre-painted steel, stainless steel wire, and wire rod. These took the form of tariff-rate quotas whereby there’s a quantity of imports that can be imported surtax-free into Canada, and the quantity was reflective of historical levels of imports. Quantities above that threshold would face a 25 per cent surtax.
In accordance with Canadian law, the government also asked the Canadian International Trade Tribunal, the CITT, to inquire into whether final safeguards that could last for three years on these products were warranted.
In early April this year, the CITT issued its finding that final safeguards were warranted on imports of two product categories: heavy plate and stainless steel wire. As a result, the provisional safeguards on the remaining five product categories expired on April 29, 2019.
The Customs Tariff currently prevents the reimposition of safeguard measures on products that were subject to previous safeguards for a period of two years following the most recent imposition. As such, safeguards may not be imposed on the five product categories that expired at the end of April. For these products, under the current law, safeguards cannot be imposed until April 2021.
The amendments being proposed in the bill to the Customs Tariff would temporarily remove the two-year moratorium on the imposition of safeguards for products that were recently subject to such measures. As well, there are consequential amendments in the bill that are being proposed to the Canadian International Trade Tribunal Act.
These amendments are intended to be temporary, and that’s why they have been structured as follows.
First, the provisions that set out the two-year prohibition on further safeguards that are in subsections 55(5) and 55(6) of the Customs Tariff would be repealed upon Royal Assent. There’s a consequential amendment made to the CITT Act to remove references to those subsections during the repeal period.
Second, the same provisions that are being repealed would be reinserted two years after Royal Assent; likewise, similar consequential amendments would have to be made to the CITT Act.
The amendments would give the government the flexibility, should the need arise during the two-year period, to respond quickly and appropriately by imposing safeguards where there is a substantiated surge of fairly traded imports that are harming Canadian producers and workers.
The conditions for the application of safeguards, as they are provided for under Canadian law, remain unchanged and still need to be met for any safeguard measures to be put in place. That will remain unchanged. The only thing being changed is the fact that you can reimpose safeguards during the two-year period.
That concludes our presentation. We’d be happy to take any questions you might have.
The Chair: Thank you, Mr. Halley. We will go to questions.
Senator Marshall: To start, wasn’t there an issue also with regard to aluminum?
Mr. Halley: With respect to the imposition of tariffs on our exports of aluminum to the United States, that is correct, but there has not been a surge of imports of aluminum into Canada. Also, no safeguard measures have been put in place on aluminum imports into Canada.
Senator Marshall: So those imports are okay.
These amendments aren’t specific just to the two of the seven categories that are warranted. This is more like a general amendment, is it not?
Mr. Halley: Correct. It is an amendment that would apply generally. The most current case is the steel products that we discussed during the opening statement with respect to those five categories where the provisional safeguards ended in April and whereby, at this stage, you could not reimpose any safeguards until April 2021. With this amendment, it would be possible to do so should the need arise. But at the same time, during that two-year period, if there are other products for which safeguards are being investigated and put into place, then the two-year moratorium that would have been lifted would apply for those product categories as well.
Senator Marshall: Could you tell us about the surtax? Who collected the surtax?
Mr. Halley: The surtax applied only in circumstances where imported quantities were above the levels that were set. There’s a level of quantity of steel products that would come in without paying surtaxes, and only those above that quantity were paying surtaxes. That was collected as part of the regular process by the Canada Border Services Agency.
Companies were importing and assessing surtax if and when they were above those quantities. You needed a permit to import within the quantity. If you did not have that, then you needed to pay the surtax.
Senator Marshall: Could you tell us how much surtax was collected?
Mr. Halley: From the moment the safeguards were applied on October 25, 2018, to April 30, the end of the period, $7.1 million in surtaxes were imposed.
A bit more than that was collected, but under trade rules, we were refunding any surtaxes that would have been paid on the five product categories for which the provisional safeguards ended in April. These are being treated as refunds, so the $7.1 million is a net result.
Senator Marshall: What happens to the $7.1 million? That’s the net amount. Is that in the Consolidated Revenue Fund?
Mr. Halley: Correct.
Senator Marshall: Is it just brought into general revenue?
Mr. Halley: Yes, that’s right.
Senator Marshall: So the government has an additional $7.1 million. Thank you.
The Chair: Before our next question, I’d like to introduce Senator Lankin, who has just joined us. She is the sponsor of the bill.
Senator Pratte: Mr. Halley or Ms. Govier, I’m trying to understand exactly how this works. The Canadian International Trade Tribunal ruled that, for five products, the Government of Canada wasn’t allowed to use its safeguard measures. If the bill is passed, the Canadian International Trade Tribunal will continue to believe that you can’t impose safeguard measures on these five products, because I suppose the decision is still valid. Does this mean that, in any event, you won’t be able to take measures for these five products, despite the passage of the bill?
Mr. Halley: No. The tribunal’s inquiry was conducted over a certain period. According to people in the industry, the situation is particularly fluid in the steel sector, where the markets around the world are very distorted. So circumstances can change quickly. If the tribunal were to review the issue, it would be for a period... They would look at a slightly different activity period where circumstances may have changed.
That said, nothing has changed in terms of the standards for implementing safeguard measures. It’s simply a matter of seeing whether the situation has changed and whether the data is different by looking at a different application period.
Senator Pratte: I haven’t read the tribunal’s decision, but apparently there hasn’t been a flood of foreign products in Canada for those five categories.
Mr. Halley: For two of the five categories, two tests basically determine whether imports have surged and whether this surge is causing injury or threatening to cause injury to domestic producers. In two of the five categories, there was a surge in imports. However, there was no injury or threat of injury. According to the tribunal, in the other three categories, there was no increase in imports. So there was no injury or threat of injury.
Senator Pratte: How does this bill align with our WTO requirements? Does it meet them? Does the WTO authorize this type of moratorium?
John Layton, Executive Director, Trade Remedies and North America Trade, Global Affairs Canada: There is no obligation at the WTO to have a moratorium in our domestic law. Some WTO members have such a moratorium and others do not. However, if we were to impose new safeguard measures on those five products within the two years, there would be questions at the WTO about whether the Canadian measures conform with our obligations.
Senator Pratte: The two-year period, is that a WTO requirement?
Mr. Layton: In the WTO Safeguards Agreement there’s a requirement to wait two years before imposing a measure on the same product.
Senator Pratte: If we adopt this bill, are we going against the WTO requirement? Could there be challenges launched to what we’re doing?
Mr. Layton: We’ve had questions from WTO members about the intent of the legislation. We’ve explained that the legislation is meant to provide flexibility in case of an emergency, of a surge of injurious imports.
I don’t think there would be a challenge of a change to our law. I think it would only become an issue at the WTO if we imposed measures again.
Senator Eaton: How dependent is Canada on imported foreign steel? I understand some regions are very dependent on it.
Mr. Halley: Michèle can correct me, but I think about 40 per cent of the production in Canada is exported, therefore the rest of the production of steel stays in the market.
We certainly are aware that there are regional dynamics in particular products with respect to the availability of supply.
Senator Eaton: So we’re dependent about 60 per cent on foreign —
Mr. Halley: My recollection is 60 per cent. Forty per cent of the production in Canada is exported, therefore the remainder stays in the domestic market.
Senator Eaton: The agreement states:
3. The United States and Canada will implement effective measures to: . . .
b. Prevent the transshipment of aluminum and steel made outside of Canada or the United States to the other country. Canada and the United States will consult together on these measures.
Interestingly, the agreement provides that the U.S. can reapply the tariffs in the future if there’s a surge in imports from Canada to the U.S., but it precludes us from retaliating except in the affected sector. As an example, we couldn’t put a tariff on Kentucky bourbon. We’d be very boxed in. Is that true? Is it kind of one-sided there?
Mr. Halley: Yes, that’s correct. If the U.S. reimposed measures on steel — and I would just note that the surge provision is on a product-by-product basis, so they wouldn’t impose it on all steel but on one particular steel product if it’s determined that there has been a surge. And we can impose our own surge measures on U.S. steel.
If we wanted to impose countermeasures, it could only be on steel, or in the case of aluminum, it would be aluminum or aluminum-containing products. It’s correct that we couldn’t impose it on other products outside of the sector.
Senator Eaton: Thank you.
Senator Forest: First, for the sake of clarity, what’s the difference between safeguard measures and anti-dumping measures?
Mr. Halley: Anti-dumping measures are in place to protect a market from unfair trade. So when dumping occurs... Dumping means selling products in the Canadian market at a lower price than in a domestic market or below the cost of production. So we’re talking about unfair trade.
Safeguard measures involve imports that don’t create an imbalance. We aren’t talking about unfair trade, because this trade is completely fair. However, there are just too many imports. The safeguard measures give domestic producers some protection to adjust to the increasing flow of imports. This gives them the chance to adapt over a transition period.
Michèle Govier, Senior Director, Trade Rules, International Trade Policy division, International Trade and Finance, Department of Finance Canada: Dumping is also more targeted. It can focus on a specific country or exporter. However, safeguards apply to imports from all countries.
Senator Forest: Is the same critical path followed to adopt those safeguards?
Ms. Govier: It is different. For dumping, an analysis must be done and the following questions asked: did dumping take place, and does it cause problems for domestic producers?
The situation is different with safeguards, as it is a matter of future import levels. In addition, there are standards to determine whether injury has been caused or not, and those standards are a bit higher for safeguards.
Senator Forest: Have you seen any reactions or comments from our partners on the two-year moratorium being eliminated?
Mr. Layton: We’ve had questions from some of our trading partners about the intent of this legislation. Last week was Canada’s trade policy review at the World Trade Organization where generally countries were very pleased with Canada’s trade policy and commitment to the rules-based trading system, but there were questions about the intent. Of course, we told them that the intent of the legislation is to provide flexibility in the case of an emergency situation with the steel surge.
Senator Forest: So the bill does not cause clashes or reactions that could fuel trade conflicts with our partners?
Mr. Layton: No. At this point there have only been questions about the intent of the legislation, but there has been no damage to our relations or no indication of negative reactions from other countries.
Senator Boehm: Thank you for being here. My question is in the direction of Senator Forest’s question.
The steel overcapacity issue has been around for a while and has been looked at by various international bodies. The G20 has spent a lot of time on that, the G7 as well. There was the Global Steel Forum. And, of course, at the OECD there is a committee on steel and the work is ongoing.
As we are on the cusp of summits with the G20 in Japan and in August the G7 in France, to what extent are you prepared to inform us as to how that discussion is going?
The second part to the question is that as countries look at what we’re doing — and Mr. Layton mentioned the discussions in Geneva at the WTO — other countries are surely in a similar position in terms of the overcapacity issue, imports and also transshipments. They all have different regimes regarding how to deal with this in their laws. But I imagine there’s some fairly active discussion going on to compare what we are doing and what others might be doing.
Mr. Layton: I can start with the G20. The global forum on steel overcapacity continues. There was a meeting of that forum in Japan last month. It’s a topic of discussion for the G20 leaders’ meeting coming up next weekend. All of the members of the forum, except for one, are intent on continuing the forum and to continue the discussions to try to tackle the root causes of steel overcapacity.
China is not convinced that the forum should continue. It needs to be renewed by G20 leaders. That issue is being addressed right now in the G20.
There’s certainly concern by other countries about diversion of steel, overcapacity of steel and imports into their areas. The European Union has a safeguard in place against a large number of steel products. Russia and some of its customs union members have steel safeguards in place. The United States, obviously, has its section 232 tariffs in place against all steel imports except from Canada and Mexico. There are a number of other countries that have targeted safeguards on steel products. A lot of countries in the world have already taken action to try to address the diversion they expect from this overcapacity.
Senator Boehm: As you implied before, the likelihood of someone launching a complaint against us is pretty low.
Mr. Layton: We’ve had questions from those countries that have measures in place, but I’m not sure that they would take a case against us given that they understand the circumstances.
Senator Boehm: Thank you.
Senator Klyne: Thank you for attending this afternoon. I want to ask a question further to Senator Eaton’s line of questioning.
When it comes to heavy plate and stainless steel wire, what countries are we predominantly importing that from, and is it into any particular regions of Canada?
Ms. Govier: Across most product categories, the U.S. is a major source of imports, and they’re not covered by the safeguards currently in place.
With respect to stainless steel wire, the major sources of non-U.S. are India, China, France and Taiwan. For heavy plate, the major sources of imports are from Turkey, Malaysia, Germany and South Korea.
In terms of the regional distribution of where those imports are going, I don’t have that information. I believe that for those products it is fairly spread out. It has not been identified to us that there are particular regional issues related to those.
Senator Klyne: I picked up on the 60-40. How much is produced locally on either one of those? The numbers you gave were 60-40 for steel generally, or was it for a particular heavy metal?
Ms. Govier: We would have to check on the specific numbers. To determine how much of the Canadian market is supplied by Canadian producers, we also need the figure out how big the Canadian market is, because we know that a certain amount is supplied by Canadian producers and a certain amount is imported. We don’t have those ratios in front of us for each of the products.
Senator Neufeld: Thank you for being here.
Help me out a bit, because I’m not totally familiar with what we’re talking about. I remember a year or two ago there was an issue in British Columbia about the cost of rebar and things that were taking place with the trade and production of rebar. Is this going to in any way affect Western Canada — I’m talking about British Columbia — regarding steel products such as rebar, or is this totally different?
Mr. Halley: I’ll turn it over to Michèle, but the bill only provides the flexibility should the need arise. There are no measures coming out of the bill that are immediately being acted upon. It would be based on a complaint or request from the industry to the government that we look at whether we can reimpose safeguards, for example. Nothing in the bill leads to that. It really is a demand-driven process.
On the rebar question, there’s a history that Michèle can speak to.
Ms. Govier: This issue has come up in previous investigations into dumping rebar. Those go back a little bit further historically. Representations were made to the trade tribunal that B.C. should be excluded from measures. That was not done. There are currently rebar anti-dumping duties in place that apply throughout Canada.
In the context of the safeguards that were imposed, stakeholders from British Columbia and other places as well had concerns about rebar. It’s a heavy product. It’s a relatively low-value product, so the transportation costs, given the value of the product, are fairly high. But Canadian rebar producers maintain the position that they can certainly supply the Canadian market.
So if a request were to come in for additional safeguards on that product, I believe that issue would have to be considered.
Senator Neufeld: So it would be the market, then; it would just cost more in British Columbia than where it’s produced; is that correct?
Ms. Govier: Potentially. As Patrick mentioned earlier, the form of the safeguard was a tariff-rate quota. So there is a certain amount that can come in surtax free. That enables historical trade to be reflected. Importers from British Columbia, if they’re maintaining their historical trade patterns, may not face significantly increased costs. It’s really just above that that the surtax would kick in.
Senator Neufeld: Thank you.
Senator Lankin: My colleagues have done a great job in covering a number of items. I wanted to ask you two questions.
First, could you clarify the difference between what we would call illegal trade activities, like dumping, and fair trade activities and protection and the issue of surge? Perhaps you could go over that again, because in speaking with colleagues, sometimes “dumping” gets used for “safeguards,” and these are different issues.
Mr. Halley: In terms of dumping or subsidization, these are considered to be unfair trade practices. The tools available are to put anti-dumping or countervailing measures to offset the negative effect of subsidization. Subsidization and dumping are seen as legal or justified trade measures, so anti-dumping and countervailing measures are there to offset those effects when they are injurious to domestic producers.
With respect to safeguards, the concept of safeguards is that there are too many imports. The imports are not necessarily unfairly traded, there are too many of those. It does provide for a period of time, up to three years, for domestic producers to adjust to this new reality, or to try to stem off the increased imports.
It does allow for a period of adjustment to the new reality that these imports may be increasing, but they are increasing too fast for producers to be able to adjust to the new realities. It does provide a bit of breathing room.
Senator Lankin: As I understand it, when we’re talking about surge levels, so above the traditional levels of imports — and this speaks to Senator Neufeld’s concerns — we really are looking at provisional safeguards if circumstances, research, consultation warrant it to be brought in, and it’s the flexibility to use that.
It’s not just the excess production capacity in the world; it’s the fact that the largest market, the U.S., has not used safeguards, surge protection. It has blocked the entire market to protect the U.S. market. They could change their mind on that and reimpose on us, and we have no ability within two years to do anything in terms of a safeguard unless this tool is available to us. Is that basically correct, or can you elaborate?
Ms. Govier: I think the first part of your question was on the other standard. It’s not just about a surge, but there also has to be injury or the threat of injury to a domestic producer; and there has to be a causal link between the two, because there could be other things potentially affecting the performance of Canadian steel producers.
That’s really the analysis the trade tribunal does, and it would be done ahead of any provisional safeguards being imposed. There has to be evidence that the companies are hurting as a result of the surge in imports.
On the second question with respect to the U.S., we need to make a distinction between the measures against Canada directly versus their measures against everyone else. Safeguards are intended to address the issue of the U.S. measures against everyone else, because the steel that would normally be going into the U.S. from all those other countries could be diverted into Canada. That’s really what’s trying to be targeted. Regardless of whether we have an agreement with the U.S. or not, safeguards are still potentially a tool we would want to use.
Senator Lankin: Thank you.
Senator M. Deacon: Thank you for being here. We’re trying to make great decisions in a short period of time, as I think we can all respect.
I want to focus on an international and domestic question. You touched on the international piece through two of my fellow senators. Have other countries found that the imports of heavy plate and stainless steel wire from certain trading partners are a threat to their respective domestic industries, such as we’ve been told by the CITT in its report with respect to Canada?
Ms. Govier: I have a list of the measures that are in place by other countries. As Mr. Layton mentioned, some are very specific. It really depends on what those countries themselves produce. Some of them may not be producers of heavy plate and stainless steel wire because it really is driven by injury to a domestic industry.
I will flag that the European Union’s steel safeguard has been in place since January and is quite broad. It covers 26 categories. I don’t have the list of them. Plate, I would think, for sure, is covered; I’m not sure about stainless steel wire.
As I look down the other products covered, I don’t see those two. That’s not to say that they aren’t being considered. For example, as Mr. Layton mentioned, the Russian kind of trade union that is looking into safeguards now is looking at flat-rolled products, which would likely include heavy plate.
So, the problem products are varied, depending on the country and the circumstances of their domestic producers.
Senator M. Deacon: Help me out with a very basic question. Who are our big steel producers in Canada? Who are the provinces that really take the lead in significant production?
Ms. Govier: The most significant production would be in Quebec, Ontario, Saskatchewan and Alberta, with downstream production being more spread out. Those are the primary producers.
Senator M. Deacon: Thank you.
Senator Forest-Niesing: I will provide some context before I ask my question. The World Trade Organization’s mission is to resolve trade conflicts between nations. The dispute settlement body, the DSB, is the WTO’s appeal court.
If I understand correctly, it is mandatory to have three judges at the DSB to handle an appeal. I also understand that, since spring 2018, the U.S. has been blocking the renewal of mandates on which World Trade Organization members must agree unanimously. Given that situation, how do you see an effective implementation of measures set out in the bill before us today?
Ms. Govier: First off, for clarification, if we were to move down the road of imposing provisional safeguards, that’s absent anything that’s going on at the WTO right now with the dispute settlement process. The process there for provisional safeguards would be that the Minister of Finance would be responsible for preparing a report that shows the evidence that safeguards are warranted. Then it’s a decision by the Governor in Council and the matter would go to the Canadian International Trade Tribunal, which is a domestic tribunal here, to look into what that is.
You’re correct that there are some significant issues at the dispute settlement body.
Mr. Layton: The problem with the appellate body of the WTO is that if Canada takes the case against another country or if a country takes a case against Canada, we can go through a panel stage but there’s no ability to appeal the decision. Basically, by the end of this year, they won’t be able to hear any appeal to the WTO unless we can resolve the issue of appointing new members or reform the dispute-settlement system. There’s a real problem with completing the dispute-settlement system at the WTO but, as Ms. Govier said, it’s only for international disputes and not for the domestic process for the safeguards.
Senator Forest-Niesing: Thank you.
The Chair: When Senator Marshall was asking a question on taxes, you said that you were looking at $7.1 million as of April 30 of this year.
Mr. Halley: The period when the provisional safeguards were applied was between October 25, 2018, and April 30, 2019.
The Chair: Therefore, can you explain the countermeasures collected against the U.S. at $1.3 billion? The blues from the other house specify that they have basically collected $3.1 billion. Can you explain that difference?
Mr. Halley: The $7.1 million is solely with respect to the safeguards on steel against non-U.S. sources. That’s a separate number from the countermeasures. The countermeasures were applied as of July 1, 2018, against certain products from the United States. As of the end of April, $1.3 billion in surtaxes had been collected on imports from the United States. A certain amount will come from the three-week period in May leading to the repeal of the countermeasures that the Minister of Finance announced on May 20. There will be a bit more potentially.
There are always changes to the accounting by the CBSA based on importers’ accounting. The number may fluctuate a bit, but, at this stage, from July 1, 2018, to April 30, 2019, it was $1.3 billion.
The Chair: It was not $3.1 billion?
Mr. Halley: No.
The Chair: With those taxes, then, is there any plan to help companies in Canada that have been affected by the disruptive trade market between the U.S. and Canada? Do you have a plan of action to help those companies?
Mr. Halley: A lot of announcements were made and a lot of measures were put in place to support the companies affected by the dispute with the United States. They were affected by tariffs in the United States but also affected by the countermeasures in Canada.
A number of measures were announced. Some were announced on June 28 or 29 of 2018 in the context of countermeasures with respect to financing facilities at Export Development Canada, at the Business Development Bank of Canada. There was some money as well for the Strategic Innovation Fund out of the Department of Innovation, Science and Economic Development. There was also support for workers out of ESDC. A lot of measures were put in place at the time.
Additional measures were announced in the 2018 Fall Economic Statement with respect to the Strategic Innovation Fund; more money went into that. There was some money for programs for small- and medium-sized enterprises announced in March of 2019. We can speak a bit more about that because Ms. Govier and I have been handling a lot of the issues with respect to remission of countermeasures.
When countermeasures were imposed against certain products from the United States, there was a remission process that was ongoing with the department whereby if the products were not available from domestic supply, then we were waiving or reimbursing the surtaxes that would be applied. That was also part of the assistance to companies affected by the situation.
The Chair: Are there any other comments from Ms. Govier?
Ms. Govier: That covers it.
The Chair: My last question to the officials would be this: How much money has been spent from countervailing duties in Canada since we imposed them?
Mr. Halley: We can get back to the committee with the exact number. There are a lot of programs. Some of the numbers are more familiar to us. For example, up to $395 million would have been remitted through the remission process. We know that because we were handling the remission process. But in terms of the specifics of each and every support measure, we can get back to the committee with the exact numbers.
The Chair: Because of the time frame of our pre-study and our report to the Senate of Canada, can you, Mr. Halley, assure us that within the next few hours you can provide that information through the clerk?
Mr. Halley: Yes, we will.
Senator Marshall: Thank you, Mr. Chair, for your assistance on that item. I would be interested in seeing how much the government has paid out to assist industry because it seems they’ve come in for a bit of a windfall. It would be nice to know who they’re helping with all that money.
The Library of Parliament provides research for us when we have hearings. A sentence in the material they provided to us on this issue states:
If the Government re-imposed such measures [meaning the measures in this bill], and that action led Canada’s trading partners to initiate a proceeding under WTO’s dispute-settlement mechanism, the period of re-imposition could end before the WTO issues its decision.
I thought that was odd.
I was looking at some articles, and I found one that appears to be on the website of Borden Ladner Gervais, a law firm with an office here in Ottawa. I don’t think they’re the authors of the article, but it is headed “If You Don’t Like The Answer, Just Ignore The Rules: Government Of Canada Intends To Disregard WTO Rules Limiting Repetitive Use Of Safeguard Measures.” It’s not a very long article, but there’s a sentence that says that with this legislation:
. . . the Government is enabling itself to disregard its WTO commitments by reimposing safeguards on the same steel products for which the CITT, following a months’-long inquiry that included two weeks of hearings, dozens of witnesses and over 38,000 had pages of evidence and argument, concluded could not be justified. This is unprecedented in Canada and likely any other WTO Member.
Then it says:
In the trade law world, this is known as a “hit and run” measure because as a practical matter it likely will expire before any challenge to it by trading partners can run its course through the WTO’s dispute settlement system.
When I read that, I was a little uneasy about these amendments. Could you speak to the merits of the portion of that article that I just quoted?
Mr. Halley: The bill does not put safeguards in place. It does allow the government the flexibility, should the need arise during a two-year period, to impose safeguards on a product on which a safeguard was imposed prior to that. There are no safeguards being applied as a result of this. It does allow for a period of time where, should the need arise, the government could do so.
Once again, the criteria to meet to have a safeguard put in place, nothing has been changed through this bill. There has to be a surge that is causing or threatening harm to the domestic producers, and evidence is needed to back that. Nothing has changed in that regard.
The bill allows for that possibility of reimposing safeguards should the need arise. Once again, the market is quite fluid. It’s a pretty distorted market with respect to steel. If we were to look at a different period of time than what the tribunal looked at in its initial inquiry, it could lead to a different conclusion, but that would have to be based on the evidence once again.
Senator Marshall: It seems peculiar to me that we have legislation that provides general rules and we have this specific situation, and we’re now going to amend the general rules so that this specific situation can dovetail into it in some manner.
Thank you for your answer.
Senator Pratte: I want to continue in the same vein as Senator Marshall. As it says in the article, are we talking about the case of a country that is hampered by the WTO rule, according to which tariff quotas cannot be reimposed on products that were already subject to them for two years? Is this a case where a country, Canada, does not like a rule and puts itself in a position to violate that rule?
Mr. Halley: As I already said, the bill provides flexibility, if circumstances allow it, to be able to do so to protect Canadian industry and Canadian workers who could be affected by that unbalanced global market. That must be clear to be able to support the reimposition. There must be a surge in imports, and there must be a causal link between that surge and injury or threat of injury. It would all essentially be caused by the increase in those imports. This remains unchanged in that respect. It is really a matter of flexibility in terms of tools the government can use to deal with a fluid market situation.
Senator Pratte: Why was a two-year period chosen? Is there a reason why that period was set at two years?
Mr. Halley: The intention is really for the situation to abate or be temporary. We recognize that we are adopting safeguards to fight the consequences of unfair trade. That way, we can benefit from a certain level of flexibility, even if the flexibility is not necessarily unlimited with regard to that situation.
When those obligations are negotiated in free trade agreements or trade agreements, like for the WTO, there are expectations with regard to the fact that countries that are party to those agreements will not take measures against Canadian exports, which would be completely unfair. It could undermine the concessions Canada made when it decided to be party to those agreements.
Senator Pratte: Thank you.
Senator Eaton: Would you say this bill is largely preventative in nature, or are we suffering from dumping right now?
Mr. Halley: There’s a distinction between dumping and safeguards.
Senator Eaton: Is it needed right this minute, or is this preventative?
Mr. Halley: It does offer the flexibility —
Senator Eaton: So it’s preventative?
Mr. Halley: That’s right, should the circumstances be there, should the evidence be there that you are no longer constrained by the two-year moratorium in an effort to prevent those circumstances from injuring Canadian producers.
Senator Eaton: We’ve agreed it is preventative. Did I understand you correctly that the main countries would probably be China, Malaysia — what other countries?
Ms. Govier: The countries I had mentioned earlier were in respect to the safeguards that are already in place. The five products that could potentially be in play relate to different countries.
Senator Eaton: What countries are we wary of right now?
Ms. Govier: I won’t read all of them because we would be listing 20 different countries, but Turkey, Singapore, Vietnam, South Korea, Russia —
Senator Eaton: You mention Vietnam and Singapore. Are they not part of the TPP? That won’t upset our TPP partners?
Ms. Govier: There’s no requirement in the TPP that we would not be able to impose global safeguards if the conditions warrant. Some of our trade agreements do have provisions along those lines under certain conditions, but the TPP does not. Nothing prevents us from doing so. Indeed, those countries may well impose safeguards that could potentially affect Canada as well. That’s within their rights.
Senator Eaton: One last question for my own education. When a country, and I’ll use the term “dumping” because it’s descriptive, or there’s a surge, what happens? The products are surged from another country into this country, but how do they get into the United States? Is there a distributor here who deliberately goes to Vietnam, Malaysia or China and buys them cheap and sends them to the U.S.? How does that work?
Ms. Govier: We’re not aware that a lot of that activity is taking place. It is a potential concern of the United States that that kind of thing could be happening. There might be imports coming into Canada from a particular country that are destined for the United States.
Senator Eaton: Why would they use us?
Ms. Govier: There could be different logistical reasons. Transshipment in the sense of going through one country to get to another is not necessarily a bad thing. It can be a logistical issue.
Senator Eaton: But it’s the same ocean. I’m trying to understand why somebody would send the steel surplus from China to Vancouver when they could send it directly to Seattle.
Ms. Govier: There’s a bit of a distinction to be made. If the intent is to come into the United States as a product of Vietnam, for example, and they’re not trying to fool anyone that it’s from Vietnam, there’s nothing wrong with that. It doesn’t matter if it comes through Canada or goes directly to the U.S. It’s clearly identified as a product of that country, and the 25 per cent that applies to those products would apply.
If the company is trying to do something through the back door, where they are importing it from Vietnam — I don’t want to disparage them, but just as an example — and they decide to relabel it and pretend it’s Canadian steel without changing it at all, that is an illegal activity and is something that should be enforced by the United States if it’s coming in and is not properly labelled.
The other situation that can occur is a Canadian producer or company importing steel in order to make it into something else. If they take it and transform it into a product that then becomes a Canadian product — if you add a certain amount of value, that happens — that is a legitimate business activity. It happens quite often.
It’s just understanding those distinctions to see what’s right and what’s wrong.
Senator Klyne: This is turning into one of those things where we need a whiteboard.
Seven products have provisional safeguards, but there are two products, the heavy plate and the stainless steel wire, on which it was deemed that safeguard measures are warranted. To focus on those two, and you gave the answer before, but what are the top countries from which we’re importing those that would be impacted?
Ms. Govier: Sorry, the top countries for the —
Senator Klyne: For the heavy plate and the stainless steel wire.
Ms. Govier: For stainless steel wire, India, China, France and Taiwan were the top sources of imports. Again, this is non-U.S. because the U.S. tends to be the highest across all categories.
For heavy plate, it was Turkey, Malaysia, Germany and South Korea.
Senator Klyne: My question is regarding the final safeguard measures on those. Are you expecting any counter or retaliatory measures from the countries that are impacted by this? If so, what kind of Canadian exports might be impacted? When I hear Turkey, I’m thinking of pulse crops or lentils that we package, refine and export. Are you expecting other retaliatory measures that could impact Canadian exports?
Ms. Govier: I wouldn’t say we’re expecting anything. We have had conversations with some of our trading partners. There is a consultative process that occurs at the WTO when safeguard measures are imposed, so some discussions have taken place and further discussions are intended.
There’s certainly nothing that we’re aware of at the moment in terms of retaliation from any of those trading partners, but I suppose at this fairly early stage we can’t rule out if there are serious concerns.
Senator Klyne: A few of those are big importers of Canadian pulse crop products.
Ms. Govier: Yes. I think some of those countries do import those types of products. Those could potentially be targets, but it’s really up to the country in question to determine on what basis it would want to retaliate.
Generally, with safeguards, you would only retaliate at the end of a WTO process that finds that Canada has done something wrong in how it has applied safeguards. It is a fairly far-off potential threat on those ones.
Senator Klyne: Is there a probability that there might be some retaliatory measures?
Ms. Govier: We don’t have any indication at this point that’s in the offing. No one has threatened or indicated that is something they are thinking of.
Senator Klyne: They have to decide that it’s warranted.
Ms. Govier: That’s correct. There are conversations ongoing, so that’s why I can’t rule it out.
Mr. Halley: During the CITT process that led to the decision on these two, I take it representatives of about 15 countries participated in the process as well. They were able to make their views known and bring any arguments to the tribunal that they wished to make at that moment.
Senator Klyne: And that’s taken into consideration when deciding if they are warranted?
Mr. Halley: Correct.
Senator Lankin: I have two questions. I’ll first deal with the broad section 232 actions of the United States. Then, second, I want to deal with tariff rate quotas, or TRQs.
With respect to a number of questions I’ve heard, I feel a need to come back to an examination of the source of section 232. This national security defence is not a safeguard that the U.S. has put in place. Safeguards are legal measures. Once you do it, you’re not supposed to do it for another two years, and we’re saying we may need to do it again.
That broad section 232, which now, as a result of the negotiated agreement, has been lifted from Mexico and Canada only, leaves a large barrier in place. The surplus producers in those countries are looking for a market. They can’t get into the U.S. without the 25 per cent tariff — the general broad tariff — so Canada becomes more vulnerable because, on the five products, we used a safeguard in response to what the U.S. did. Our agreement is that it has been taken off. Now the two years is, all of sudden, relevant if there is a surge and world conditions could lead to a surge coming in.
The other thing is the U.S. said in that agreement that they reserve the right — because it’s not a safeguard; they’re not under a two-year restriction in terms of their WTO commitments — to put this back if they see any transshipment.
Can you talk about how those two things work together? I think that’s what creates the vulnerability for Canada right now in which we would want to give our government the flexibility if this bill is passed.
Ms. Govier: The section 232 measure in the United States was an important part of the context for the government putting the provisional measures in place initially. Canada is not a frequent user of safeguards. The last time we applied them was in the 1990s. It clearly reflected that this was an exceptional situation that required an exceptional response.
As I had mentioned earlier, the fact it is still being imposed and the section 232 measures are still in place with respect to virtually all other countries means this risk is still there. That is part of the reason it’s important to have the flexibility to be able to reimpose safeguards should the conditions be met for imposing them.
Senator Lankin: The second question I have is with regard to TRQs. Here we’re talking in terms of the ability to use safeguards. That’s the kind of protective measure or safeguard measure that might be used.
As you explained, there’s a historical norm for imports, and this would only be applied to a surge above that, which would have to be proven to be harmful to the industry. A number of tests would have to be met.
From those who would have concerns, such as importers — and I think this goes back to Senator Neufeld’s question in terms of regional considerations about B.C. importers — and end-product users that have a reliance on imports, they would still have access to the traditional normal levels that they have. One of the concerns they raised when Canada put the provisional safeguard measures in place last year was that all of sudden there was a rush to get your share of the imports, so it was first come, first served.
The government has moved to address that by putting in a quota process to ensure that those end-users and importers don’t get beat out by some other bigger group and there’s fair access.
Could you describe how that measure works? That was a measure to protect those who had concerns about the imposition of the safeguards last year.
Ms. Govier: Yes, I can speak to that.
When the safeguard was imposed last year, it was in the form of a tariff rate quota. At the time, there was not the legal authority to be able to allocate that quota. It was a first-come/first-served system, which did raise some concerns among stakeholders. They couldn’t plan their business very well not knowing whether they could get a permit and therefore whether the surtax would apply or not.
In the context of the budget implementation act, amendments were made to the Export and Import Permits Act giving the authority to be able to allocate. If safeguards were to be imposed again in the form of the tariff rate quota, the government would have the option of allocating on different bases, but one basis could be related to historical share of the importers. That would give more predictability for importers and ultimately end-users in terms of getting the steel that they want and knowing that it would be surtax-free or not ahead of time.
Senator Lankin: The importers and some end-users and product-users had concerns last time around. We’ve spoken to the manufacturers and exporters who have said, basically, that they represent the whole spectrum of the market and there are concerns on both sides. The steel industry has a legitimate concern as well. So they have a very balanced approach that these are tools, if necessary, and that the process and evidence has to drive if it is necessary or not.
In the discussions our office had with a number of trade lawyers about concerns of the type in the article Senator Marshall referred to, we found that when pushed and when talking about this just being surge capacity, people back off because they may need protection in another way at some point in time.
What have you heard thus far from any of those stakeholder groups who would naturally want to have questions and understand what the government’s intention is here? A number of them are aware of it and we’ve had conversations. I’d like to know what government has officially heard.
Mr. Halley: We’ve heard concerns with respect to the potential for the reimposition of safeguards. But also, as Michèle mentioned, some of the challenges that were being faced during the period where provisional safeguards applied from October to April will probably be different this time around. To a certain degree, that might also help alleviate some concerns of certain companies or certain downstream users and importers.
I think even in the provisional safeguards we had last year, we were facing some issues that we were able to address during the course of the provisional safeguard. For example, there were concerns with respect to goods that were in transit to Canada prior to the imposition of safeguards because these are offshore products with a relatively lengthy travel time to Canada, so we fixed that at some point.
Some of these lessons learned have been helpful and I think they help alleviate some of the concerns, not all of them, that importers might have on a forward basis should we go down this road again.
The Chair: For clarity, I have two questions.
First, how does the Canadian International Trade Tribunal determine whether safeguard measures are warranted when it conducts an inquiry?
Second, would the adoption of Bill C-101 change the manner in which the Canadian International Trade Tribunal Act conducts its own inquiries?
Mr. Halley: I’ll deal with the second question, which is easier than the first one.
Nothing would change for the tribunal. It would be guided by the same criteria, the same conditions and the same processes that they used before.
With respect to the first question, Michèle, do you want to speak about that?
Ms. Govier: I can walk through a bit of the CITT process. Essentially, they contact all interested parties and invite people to identify themselves as interested parties as part of the proceeding.
If you look at the report they did last time, quite a range of different stakeholders came forward, from domestic steel producers to unions, downstream users, importers, provinces and other governments as well.
They received submissions from all of these parties to get evidence with respect to whether or not there’s a surge as well as with respect to what the impact is on domestic producers to determine whether there’s injury or threat of injury.
They also hold a public hearing where they can ask questions to different witnesses. They can test some of the information they have been provided as part of these submissions, and the different parties can challenge each other on the assertions being made. It’s quite a comprehensive and transparent process that allows for a full airing of views.
After that hearing takes place, the tribunal does its own deliberations and puts together quite a comprehensive report detailing the evidence that was received and their findings with respect to those elements.
For the ones where they did find that final safeguards were warranted, they recommend the action or the form of remedy to be taken by the government.
The Chair: On behalf of the Standing Senate Committee on National Finance, you have demonstrated your professionalism. It has been very instructive in dealing with our pre-study of Bill C-101. We want to say thank you.
Honourable senators, we will suspend for two minutes in order to continue in camera.
(The committee continued in camera.)