[Recorded by Electronic Apparatus]
Monday, June 17, 1996
.1841 
[English]
The Co-Chairman (Mr. Dupuy): This is the first joint meeting of the subcommittee of the Standing Committee on Finance dealing with SIMA and of the subcommittee of the Standing Committee on Foreign Affairs that normally deals with trade disputes, but at a joint meeting, we're joining our friends from Finance to deal with SIMA.
Mr. Thomas Bernes is Assistant Deputy Minister, International Trade and Finance Branch.
Mr. Bernes, welcome. You have some colleagues with you. If you wish to introduce them, you're welcome to. You have the floor.
Mr. Thomas Bernes (Assistant Deputy Minister, International Trade and Finance Branch, Department of Finance): Thank you very much, Mr. Chairman, and thank you, members of the committee, for giving us the opportunity to address you. We look forward to assisting you in your deliberations.
As you noted, a number of officials have joined me today, which reflects the fact that the operation of Canada's trade remedy system involves coordination of three government departments and one independent tribunal.
Revenue Canada is represented here by Brian Brimble, director general of the anti-dumping and countervailing duty division, and the Canadian International Trade Tribunal is represented by general counsel Gerry Stobo. These are the key players respecting the administration of the Special Import Measures Act.
In addition, Foreign Affairs and International Trade is represented by John Gero, director of the trade remedies division, and Mr. Terry Collins-Williams is the director of the international economic relations division of the Department of Finance.
Foreign Affairs and Finance work closely together on trade remedy policy to ensure proper coordination of our import and export interests and the development of our positions on international trade negotiations.
I believe we've already circulated a copy of some remarks, so I will try to move through them fairly expeditiously, and then we would be happy to respond to questions the committee may have.
I guess the first question is why review SIMA? As part of normal government practice, after ten years legislation is frequently reviewed to see how it's operating. Partly in response to a report by the Auditor General, where such a review was suggested in the 1994 budget, the Minister of Finance announced that the government would ask that SIMA be reviewed.
In making his request to this committee, the minister noted that SIMA has implications for a broad range of Canadian business and consumer interests. It's therefore important, we think, that the review provide an opportunity for all parties to express their views.
To assist in the conduct of the review, the minister also forwarded to the committee a background paper on SIMA. If I may, I will quickly outline the key issues raised in this paper in order to help set the stage for the subcommittee's review.
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First, what is SIMA? SIMA authorizes the government to apply anti-dumping and countervailing duties to protect Canadian firms from injury caused by dumping practices of foreign firms or subsidy practices of foreign governments. Our domestic legislation is consistent with a set of international rules set out in agreements under the World Trade Organization, formerly called the GATT.
SIMA, when it was set out and passed in 1984, represented a consolidation and modernization of the Canadian trade remedy system, which in fact is one of the oldest such systems in the world. In 1984 SIMA responded to the recommendations of the parliamentary subcommittee on import policy at that time, chaired by the Hon. Bryce Mackasey.
Trade remedies in the form of anti-dumping and countervailing duties are an important aspect of import policy, next to tariffs and safeguard measures. They are controversial measures and are often the subject of trade tensions between nations, increasingly so given the growing interdependence of international trade and the elimination of more traditional barriers such as tariffs.
As the imposition of anti-dumping duties or countervailing duties represents an exception from a country's commitments to the World Trade Organization not to raise bound tariffs and not to discriminate in its treatment of imports - the ``most favoured nation'' principle - the right to impose these special duties must be carefully circumscribed. The agreements in the WTO therefore set out detailed rules respecting the rights and obligations of countries in administering trade remedy protection.
Given this WTO framework, the Canadian system is generally comparable to the systems of other major users, including the United States, the European Union, Mexico and Australia. The WTO does, however, provide a certain amount of latitude in the administration of trade remedy laws. As a result there are institutional and procedural variations between systems. These variations are largely a reflection of differing legal cultures and economic circumstances.
As I said, the design of SIMA seeks to reflect Canadian economic circumstances. One of the challenges facing the Mackasey subcommittee in 1984 was to design a law that balanced the interests of industries seeking trade remedy protection with the interests of consumers and other manufacturers that may be negatively affected by increased costs resulting from the imposition of anti-dumping or countervailing duties. This remains the challenge today. A key question for this review is whether the current balance provided for in the law remains relevant given our current economic circumstances and our trade policy interests. The review will have some controversial elements given the different domestic interests. Trade practitioners and our major trading partners will no doubt have views to express.
I will not go into detail on the operation of the system. You have an overview in the background paper. However, I do want to touch on the key elements of an investigation under SIMA.
Two conditions must exist in order for a country to impose anti-dumping or countervailing duties. It must be shown first that the imported goods are dumped or subsidized, and second that these dumped or subsidized goods are causing injury to the domestic producers of like goods. Under the current act, Revenue Canada is responsible for determining dumping and subsidization, and the Canadian International Trade Tribunal is responsible for determining if injury exists. The procedures they follow and the time limits are set out in my notes, which I will skip over.
Allow me to give you some feel for the frequency of use. Canada currently has in place39 anti-dumping orders affecting imports from over 40 different countries. In total these actions cover approximately $1 billion of imports per year or 1% of total imports. Dumping margins range from 5% to 64%, with an average margin of 37%. This compares to an average tariff rate today of about 1.6%. The sectors that have used anti-dumping remedies most often are primary metals - largely steel - miscellaneous manufacturing and textiles.
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Before opening the floor to questions, I would like to touch on some key issues that may be raised by parties to the review.
As was noted earlier, trade remedy action is controversial. It represents a legal derogation from basic international trade principles. These measures are intended to provide short-term relief to domestic producers, but in doing so they necessarily impose costs on others in our economy, downstream users of the goods receiving protection and ultimately the consumer. This impact becomes increasingly problematic as firms develop global marketing and production strategies.
In the context of NAFTA, Canada has assessed the costs and benefits of trade remedies and determined that it would be in our interest to seek the elimination of these measures within the context of a free trade area. This position is based on economic logic and our interest in securing access to the market of our largest trading partner.
The status quo of tit for tat trade remedy actions creates uncertainty respecting market access. In the case of such an uncertainty an investor will prefer, other things being equal, to locate in a larger market. Therefore this places Canada at a distinct disadvantage in looking at investment.
As all members are aware, we have not been successful in convincing the United States that trade remedies have no place in a free trade area where markets have become integrated. As a result, you will hear representations from some Canadian firms arguing for us to change our laws to reflect what they consider to be the more burdensome aspects of the U.S. trade remedy system. They argue that if the United States will not consider alternatives, then Canada should ensure that we have a level playing field in terms of the application of anti-dumping law.
Other issues that will be raised include the public interest authority provided under SIMA. This authority allows for the elimination or reduction of the duties when it is in the public interest. This was a feature of the legislation developed by the Mackasey subcommittee to address the issue of balancing the domestic interests affected by SIMA.
The general authority currently provided in the law has been difficult to interpret, and you can expect representations from those parties who want this authority to be further clarified.
We believe you can also expect to hear from a range of trade practitioners and small and medium-sized businesses who may seek changes to procedural aspects of the law. The investigation process is complex and costly to parties, and maintaining access to the system will be an important issue.
In conclusion, anti-dumping and countervailing duty investigations carried out under the Special Import Measures Act are complex undertakings that can have economic implications for a broad range of domestic and international interests.
I believe, as I said, the key question this committee may want to consider in the conduct of its review is this: given current economic factors, has SIMA retained the appropriate balance between the right of industry to seek trade remedy protection and the right of those that may be adversely affected by such measures?
In this regard principles of transparency in decision-making, procedural fairness, administrative and economic efficiency, and accessibility are all important factors to be considered and reinforced where required.
On behalf of the officials of my department and the others represented here today, we are ready to respond to the needs of your subcommittee, given the tight frame you are operating under. We have established an interdepartmental group to ensure that we can respond promptly and quickly to your information needs.
Thank you, Mr. Chairman.
The Co-Chairman (Mr. Dupuy): Thank you very much, Mr. Bernes.
[Translation]
Mr. Bélisle, would you like to ask a few questions?
Mr. Bélisle (La Prairie): Thank you, Mr. Chairman. My first question goes to Mr. Bernes. What events warrant the changes to the Special Import Measures Act and what are the main consequences of these changes?
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[English]
Mr. Bernes: As I indicated, I think the major issue the committee will want to address is whether the balance of interest between those industries seeking protection and consumer interests is adequately protected by the current law. We have not, in the paper which has been provided, come to a view on that. Indeed, that is a question on which we are seeking your advice.
As I indicated, there are some concerned groups who will argue the current balance should be modified, either in the interests of those industries seeking protection, particularly because of the changed circumstances as a result of NAFTA and the need to try to encourage the United States to move towards the elimination of trade remedy laws...but until that can be achieved, to ensure we have a level playing field in terms of both the law and its application. There are other consumer interests who will argue there is greater need for public interest considerations of balancing the interests of the consumers. As I say, I think that is the key question that needs to be addressed and that we would welcome your guidance on.
[Translation]
Mr. Bélisle: Here, Mr. Bernes, we are talking about Canada's importation policy. Is it linked to the export policy or are the two policies totally separate?
[English]
Mr. Bernes: The rules that allow countries to take trade remedy action are derogations from the basic principles under the GATT, under the WTO. Therefore there is a link between our exports, obviously, and our own legislation. Canada, as a large trading country with an open economy, has consistently sought, both through the FTA and NAFTA negotiations and also in the context of the Uruguay Round and previous rounds, to ensure adequate constraints were placed on the ability of countries to take these unilateral decisions because of our export interest. I think in the Uruguay Round, in the area of countervailing duties, we were particularly successful in achieving some major objectives. We were less successful in changing the rules on anti-dumping systems.
In the context of NAFTA we have ourselves concluded, but also the private sector has indicated quite clearly, the elimination of trade remedy legislation, as is the case in the European Union, as is the case in the Australia-New Zealand trade agreement, would remove a remaining element of uncertainty and therefore would assist in ensuring investment decisions are made on the basis of economic factors and not other factors.
[Translation]
Mr. Bélisle: Thank you.
In the document that you submitted to us, you stated that SIMA reflected the economic situation in Canada. Are you talking about the medium term or long term economic situation or about a specific period? Could you elaborate? Is it based on our economic situation at a specific time, on our current situation or on our long term economic situation?
[English]
Mr. Bernes: I think the legislation reflected essentially the recommendations of the Mackasey committee, which came to view in 1984, on how to balance the interests between producers and consumers. Obviously since that time the structure of the Canadian economy has changed. We have entered into the free trade agreement and into NAFTA and we have gone through the Uruguay Round, which has changed the rules within the international trading system.
It's really in that changed circumstance, given the new trade obligations we have, given changes in the direction of our trade flows, given the increasing importance of trade to the Canadian economy, albeit starting from a high base to begin with... In that context, is the balance in the legislation - like the balance between producer and consumer interests - still the right and appropriate balance?
.1900
[Translation]
Mr. Bélisle: This is my last question, at least for the time being. In your document you stated that:
- The review will have some controversial elements given the differing domestic interests. Trade
practitioners and our major trading partners will no doubt have views to express.
[English]
Mr. Bernes: Obviously, during trade negotiations this has been a major topic of discussion and negotiation. Under the WTO, there are committees that look at trade remedy questions and seek to clarify rules that may be less than fully clear and that try to prevent disputes or to manage disputes when those do arise.
Also, in the context of NAFTA, a working group was established with a two-year mandate - that concluded in December - to consider how to lessen disputes in the trade remedy area.
So these have been subjects of discussion. There are variations in the various systems, and of course each country believes that its own variation makes sense, and each country seeks from an export interest to try to have modifications that will assist their exporters when they find themselves confronted by our trade remedy legislation.
[Translation]
Mr. Bélisle: This is definitely my last question, Mr. Chairman.
The Co-Chairman (Mr. Dupuy): I will have to ask you to wait for the second round.
[English]
Mr. Grubel.
Mr. Grubel (Capilano - Howe Sound): Thank you very much, Mr. Chairman.
As a professional economist, I'm most pleased that you're here. It's a subject that's been of some interest to me throughout my career.
I should say that in one of the answers I would have added something. Forgive me for putting on my professorial hat here, but the circumstances have changed since we developed this kind of legislation. Really, international trade now predominantly consists of products that are close substitutes for each other. There's hardly a product any more in which a producer or a group of producers have a monopoly.
So the fact is, of course, that if a country dumps or a group of producers dumps, by definition they lose money. Therefore, they must do so in the old model, which underlies this... They must expect at some point in the future to raise the price of the product after they have driven out or damaged the producer in Canada. They need to raise the price above what it would have been had there not been this action, because they have to recoup their costs from dumping it.
In today's world, where there's hardly a supplier that has a monopoly on anything and where there are many sources of supply, it is inconceivable to me that a producer actually would have a net positive rate of return from dumping, because the moment that producer tried to raise the price in Canada, substitutes would flow in from the rest of the world and would simply re-establish the world price.
This is a very important change that has taken place - and I don't know whether you have it in your paper - as compared to the olden days when industries were so much more segmented and there were technical monopolies and so on.
I must tell you that at the last meeting of the Canada-U.S. parliamentary association, we had a group interested in trade and finance. I brought up the subject and suggested that there would certainly be no place for this any more in NAFTA. It was not well received, but the distinct impression I had from several senators and distinguished congressmen who were there was that they didn't really know much about it.
That sort of reinforced my impression that in the U.S. Congress you're involved in it if there is somebody in industry in your district who makes a lot of noise, but otherwise the Americans are so inward-oriented that they probably wouldn't have much interest.
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I would like to conclude with a question. Do you think it might be in the interest of Canada to declare a unilateral abandonment of the right to countervail or to have anti-dumping action? I don't know what capacity. I'm asking you to answer that question.
Mr. Bernes: On Mr. Grubel's first point on the changing nature of international markets and the globalization that is occurring, and hence much greater competition, I certainly agree with that point and I think it's very valid.
With respect to the specific question he addressed to me, Mr. Chairman, I would refer that back to the committee. That in some ways is the question before you that the minister has posed, which is whether the current balance in the legislation is correct today given these changed economic circumstances. Should they be made more burdensome or should one seek to make them lighter, including eliminating them? I think you will find as you conduct your hearings and hear from industry that this is the question they will focus on, and this is precisely where the government is seeking advice from you.
The Co-Chairman (Mr. Dupuy): Mr. Assadourian.
Mr. Assadourian (Don Valley North): On page 5 of your presentation you talked about causing injury to domestic producers of like goods. I have a constituent who came to my office a few months ago. He has a small plant that manufactures brake shoes and he employs two dozen or so workers. He complained that he can't compete against the same items coming in from China. He says that the hourly rate for Canadian workers would be one month's salary or so for the labour there. He has started laying off people because he cannot compete with the imported goods from China.
I asked him to write a report indicating the damage he is receiving from these imports, but he never got back to me because he was very frustrated and disappointed. The system doesn't work; it's good for the foreigners, not the workers; we have to lay off people. He was really upset that I couldn't do or say anything except to tell him to write a report that I will take to the department. He never did write a report.
What can anybody do in a case like this, and how much damage does the department have to see in order to act?
Mr. Bernes: The process, of course, is a legal process that's set out. As I indicated, there are two components to it. One is National Revenue, which when a complaint is filed with it makes the determination of whether they are like goods and whether dumping or subsidization has occurred. It makes a preliminary injury determination. If there is a preliminary finding, then National Revenue continues its investigation and the Canadian International Trade Tribunal addresses the question of injury, looking at a number of factors.
I might turn to my colleagues to help me. Mr. Brimble from National Revenue and Mr. Stobo from CITT could elaborate.
Mr. Brian Brimble (Director General, Anti-Dumping and Countervailing Division, Department of National Revenue): If we receive a complaint from a Canadian producer of the sort you mentioned, we have a specific complainant's kit to use in communicating with the complainant. We will ask the complainant for information that gives some indication that the goods are being dumped or subsidized. Then we would look at what damage they are causing to that company, whether there are employee lay-offs, lost profits, lost sales, things of this nature. We get back very quickly to any company that approaches us with a complaint and lay out the type of information required under the law for us to take an action.
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Of course, these actions are serious trade matters with long legal consequences. So we have to act only after we have satisfied ourselves that first there is dumping in the marketplace, there is some form of injury to that company, and that it is the dumping that's causing that injury, not some other matter, such as internal difficulties within the company.
But these are matters in which we would deal in confidence with the individual companies. Once we receive a submission from a corporation, then we have 30 days to evaluate it and make a decision as to whether an investigation can be launched.
Mr. Gerry Stobo (General Counsel, Canadian International Trade Tribunal): To follow up on what Mr. Brimble was saying, the International Trade Tribunal will of course initiate its processes once we hear from Revenue Canada that there is a case for us to inquire into. We have120 days from the date they give us this preliminary determination of injury and dumping within which to conduct our affairs.
The sorts of things that we would be taking into account in conducting our inquiry are those things that Mr. Brimble has pointed out to you. We would look at the capacity utilization, the employment, and whether or not there's price suppression. In receiving evidence on all of those points, we'll of course be receiving evidence from both the domestic industry and the importers and exporters on those, but we'll ask ourselves at the end of the day whether there has been material injury to the domestic industry by virtue of the dumping of these goods.
The Co-Chairman (Mr. Dupuy): Mr. St. Denis.
Mr. St. Denis (Algoma): Thank you, Mr. Chairman.
Thank you, gentlemen, for being here tonight. This certainly portends to be an intriguing subject. It's one that has no doubt been studied many times over the years.
Mr. Bernes, you mentioned that part of our mandate will be maybe to get some sense of the balance, particularly maybe between the U.S. and ourselves, I guess. These two countries have the largest trading relationship in the world, or one of them anyway.
Are there quantitative measures of balance or are we really undertaking a task of comparing apples and oranges, which is the American system of looking at importation and ours? I think we can agree that they are very different. Are there any quantitative measures to make a comparison in attempting to search for a balance?
Mr. Bernes: I think there are some quantitative measures. One can obviously look at the number of anti-dumping orders that are in place between Canada and the United States. We are roughly equal. One could look at the number of initiations. There, it's interesting. The United States has not initiated an anti-dumping investigation against a Canadian product during the course of the last three years, yet I believe we have initiated 10 in that time against U.S. products.
So those give you some sense. One can look at the margins. There is certainly material on this that we think demonstrates that margins tend to be fairly comparable. So this is one side of it: is dumping found with the same frequency and are the margins roughly the same? Certainly we can provide you with more information on that.
Another question is: what is the actual burden? You've noted there that the United States system is more burdensome. That means there's more uncertainty to some degree. There are greater costs to Canadian exporters in trying to defend their export interests in the United States.
There are uncertainties in the way the U.S. system operates that can have a chilling effect on trade, which our system doesn't have. Once again, those are more or less quantifiable elements. That is where I think you'll want to hear the views of the concerned industries. I'm sure they'll express them. I know some of them are here in the room tonight.
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Mr. St. Denis: I hope you'll come back to me after, Mr. Chairman. Thank you.
The Co-Chairman (Mr. Dupuy): Thank you.
Mr. Campbell.
Mr. Campbell (St. Paul's): Thank you, Mr. Chairman. I have a number of questions, so I'll just try to deal with a couple of them right now, then hope to come back in another round.
I was interested in Mr. Grubel's question, as we're not often given the chance in this committee to discuss economy theory. Here in the trade laws and in the Special Import Measures Act we find ourselves at the intersection of law, economics and reality.
Mr. Grubel's absolutely right: there is no rationale, as I can understand it, for dumping, as one would traditionally look at what a competitor would hope to do later. This is precisely whatMr. Grubel suggested - raise prices - and that's simply not possible in the kind of world economy that we function in.
He didn't ask you the question I'm going to ask you: what is the rationale, then, for dumping? If it's not to allow me the opportunity later on to raise prices, why would I engage in it?
Mr. Bernes: I think there are situations, for instance, in cyclical industries whereby it may be in their interests, in terms of minimizing their loss, to dump over the short term. Even though they're losing money, they would lose even more money by shutting down their production.
If one looks in the agricultural industry, certainly there are cases whereby you may have large productions, given climatic circumstances, and therefore people are trying to get rid of the product before it deteriorates and has no value at all. It's to recoup some return from it. So I think there are circumstances whereby, in the short term, you can find that there is, for those concerned companies, a rationale to dump.
Mr. Campbell: I wanted to ask the question, which was rhetorical. I assumed that was the answer, but I wanted to get it on the record because I didn't want to leave people with the impression that for some reason producers abroad are engaging in irrational actions. Obviously from their perspective it's quite rational. They're dealing with a situation of overcapacity.
Mr. Grubel's pointing his finger at me. I don't know what that means.
They're dealing with overcapacity or some temporary impediment to shipping their goods somewhere else perhaps, so they dump them somewhere. So I wanted to make sure we all understood that this could be the reason. It might not be the opportunity to raise prices later on.
Here's the other question. Then I'll come back later in the next round. This relates to the public interest exemption.
Am I correct that this is a novel feature of Canadian law? It's certainly not something found in the United States. I wonder if you, Mr. Bernes, or your colleagues would comment not so much on how we evolved to have such an exemption in our statute, but on how it's functioning. Would you compare that experience to your observations on the experience of other jurisdictions that don't have a similar exemption? What purpose does it serve and is it making our law more effective or less effective, better balanced or less balanced?
Mr. Bernes: As you noted, Mr. Campbell, it's true that the United States does not have a public interest provision. Other countries do have that. Indeed, the WTO has encouraged countries to have a public interest provision.
Mr. Campbell: I'm sorry, Mr. Bernes, just so we all understand how it works or what it means, could you elaborate?
Mr. Bernes: After a normal investigation has been completed, as described by my colleagues from National Revenue and from the CITT, the CITT may decide on its own or at the direction of the Minister of Finance to undertake a public interest inquiry whereby the question is no longer whether and if Canadian industry is being injured through dumped or subsidized products but whether the broader public interest, the broader economic interest, would be served by applying a lesser duty or even perhaps no duty. A circumstance may arise in which, in theory at least, you may have a monopoly in Canada that arguably is being injured by dumped imports, but one could make the economic argument that allowing for competition and not leaving this monopoly in a controlling position would be in the public interest.
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Under the Canadian system, the margin of dumping is the duty that is applied. There are circumstances in which you may find that that anti-dumping duty imposes a cost on consumers that may create problems and that a lesser duty may in fact remedy the injury caused to the Canadian industry but not impose the same costs upon consumers.
We've seen that in the case of corn. There was recently an inquiry by the CITT in respect of sugar. These are cases that have come up.
At the end of the day, there is provision for the public interest, but the criteria are not totally clear and one is really trying to come to a judgment about whether the normal rule should be set aside. That, as I say, has created problems. How does one create balance in that context, and how does one say to a group of producers who've applied for trade remedy protection that the normal rules do not apply in this case?
Mr. Campbell: And on our experience compared to that of the United States, for instance?
Mr. Bernes: The United States does not apply it. It has come to the view that this sort of judgment is very difficult to come to. I think that in part it has done that because of the nature of its economy. It obviously depends much less on imports than Canada does, and for it it has been a peripheral issue.
On the other hand, the European Union applies a lesser-duty rule, whereby it applies a duty that is necessary to remedy the injury but not necessarily the full amount of the dumping margin. In addition, it has public interest provisions.
So there are two contrasting examples there. One is the European Union, which has made greater use of it, but that becomes a very political exercise involving the member states and trying to reflect the interests of the members of the European Union.
Mr. Penson (Peace River): I'd like to welcome the group here, as well.
I'm looking forward to the industry coming before our committee to talk about its concerns. I suggest that when we talked about importers versus exporters, it was almost as if they were two distinct groups. I think what we are going to be hearing from some of the people in the industry who will come here is that importers are also exporters and they're greatly affected by countervail and dumping, to the extent that it's an added cost to many of them when they export the finished product.
Something we should be able to get a handle on is this: has any cost-benefit study been done, at least on the duties that are collected under countervail and dumping versus the cost of Canada administering and having all of that set up in place? A real cost is involved. I know that in cases of different products we have people flying down to Georgia or someplace else and checking out the price of carpets and so on. So we know that there's a cost involved in administering this, but do the duties that are collected at least offset the cost of this administration?
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Mr. Bernes: I'll ask the administrator to respond to that question.
Mr. Brimble: Yes, I can put your mind at ease at least on that point. We do in fact collect more than the program costs. At least from the Revenue Canada perspective, the program costs somewhere in the order of $9 million, and on average we collect roughly $13 million a year in anti-dumping and countervailing duties.
Mr. Penson: I'd like to continue. In my view this is going to boil down to a political decision. It seems to me anti-dumping and countervail probably don't have much place in a free trade zone especially. It seems to me if Canada is going to try to get further improvements to the World Trade Organization and the GATT at the next round, we should be advancing this. So I'm looking forward to hearing from the industry people. I found what you've had to say here this evening very helpful.
I will turn over the rest of my time to Mr. Grubel. He had a comment, I think, Mr. Chair.
The Co-Chairman (Mr. Dupuy): We've completed the first round. I must say, one of the advantages of this joint meeting of two subcommittees is that when a chairman has to leave, as I do, there is another able chairman stepping in.
I will pass over to you, Ron, for the second round and the conclusion of the meeting.
[Translation]
The Co-Chairman (Mr. Duhamel): Thank you, Mr. Dupuy.
I shall start with a question because I need some clarification.
[English]
We talk about a balance between the providers and the consumers. But it's a bit more complicated than that, is it not? Would it not vary according to sector, industry by industry? It would appear to me it's not something generally quantifiable overall. Or have I misunderstood something? Could someone provide some clarification for me on that point?
Mr. Bernes: No, I think you're correct, Mr. Chairman. It will vary sector by sector. I think if one looks at highly integrated industries on a North American or worldwide basis, clearly the considerations that are brought to bear are different from those when it's not seeing that same integration take place. So it is highly complex and it does vary from sector to sector.
The Chairman: Do we have any insights into how complex it is? Are we talking about several sectors, several different kinds of industries? How complex is complex in this particular situation? If we're talking about two or three variables, that's easily managed, but if we're talking about thirty-three, that's considerably more complex. Do we have a sense of the field of action here? When we talk about sectors, how many sectors are we talking about?
Mr. Bernes: If one looks at the sectors that have made most use of the trade remedies system -
The Chairman: There are three.
Mr. Bernes: That's right, there are essentially three. So I think one will hear from them.
The Chairman: But the potential... If we go beyond those three, how many other sectors are involved?
Mr. Bernes: I think the question would depend on how others see it. They may be quite satisfied today with the current balance in the system and how it operates. Were one to contemplate changes to that, then other sectors could potentially become more affected. That's why I think I've suggested in my remarks that you will want to hear from a wide variety of concerned groups.
[Translation]
The Co-Chairman (Mr. Duhamel): Mr. Bélisle, would you like to carry on during the second round of questions?
Mr. Bélisle: Thank you. I would like to ask our witnesses a few questions because I have some doubts as to the effectiveness of the measures and the instruments we used against dumping and subsidization. Are the same countries and the same companies always responsible for dumping in some Canadian sectors or are we dealing with an economic cycle? You said that dumping usually occurred in cyclical sectors. From one cycle to the next, these countries or companies have tried to adjust. I am thinking of Turkey, in the steel sector. It is always the same companies and the same countries that dump their products in specific sectors in Canada or, from our economic cycle to the next as if these economic agents were trying to adjust, so to speak?
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[English]
Mr. Brimble: I guess if we look over a fairly long horizon, say over the course of the past decade, in some sectors you will see a continuum and in other sectors, other industries, you will see a completely changed picture from year to year.
One thing you do find in dumping actions is that one source becomes a particular problem. If you have a dumping problem from Taiwan, for example, and you solve that, it can happen that the manufacturers in that locale may move off to another location or new companies may pop up in another location, and another source becomes a problem.
The other comment I would make is that these measures do stay in place normally for a five-year period. Of course, over that five-year period the department is always dealing with the same exporters in terms of the parties, which we have to ensure are fairly pricing the product to Canada.
[Translation]
Mr. Bélisle: Thank you. A last question. I read in Mr. Berne's document that:
- ... Revenue Canada is responsible for determining dumping and subsidization and the Canadian
International Trade Tribunal is responsible for determining whether there is injury.
[English]
Mr. Brimble: In cases where there is no injury, there is no action taken to curb the imports. This is consistent with the legislation, which envisages that if dumped imports are coming into Canada it is obvious that they're low-priced and that is of benefit to consumers. If they aren't damaging any Canadian company, then that's a benefit to the Canadian economy.
Mr. Bernes: I might just add, Mr. Chairman, that the department comes to a preliminary determination. Of course, a preliminary determination is a first decision that allows for anti-dumping duties to be put in place if indeed it does appear that there is injury caused by the dumping or subsidization, while a more complete and thorough analysis both of the numbers by the department and of the injury determination by the tribunal takes place. So where there does appear to be injury, the system does provide for measures to be put in place to ensure that injury does not continue to take place.
[Translation]
Mr. Bélisle: You still take action because even if there is no short term injury, another occurrence of a similar type of dumping could be prejudicial. You answer my question.
In your document, you are also indicate that:
- Under normal circumstances, SIMA requires that the process, from initiation to final order, be
completed within 210 days.
[English]
Mr. Brimble: The question of the timing of investigations is something that was dealt with extensively by the Mackasey hearings back in 1984. The timeframes that were put into the law were to quicken the pace at which investigational decisions could be made.
I would point out that once we launch an investigation, we make a preliminary decision within 90 days of the commencement of the investigation, and it is at that point that provisional duties can be put into place if we find that in fact goods are being dumped, So from 90 days after the initiation of the investigation, Canadian producers can receive protection that is provisionally in place until the final decisions are made.
.1935
[Translation]
The Co-Chairman (Mr. Duhamel): Thank you, Mr. Bélisle. Mr. Grubel.
[English]
Mr. Grubel: I wonder whether you could tell us a little bit more about how you find out that dumping has taken place. When a product is sold under normal circumstances, it covers variable cost, fixed cost, and a little profit or sometimes excess profit. Presumably if there's profit or excess profit, you could never find anything.
Now we go to the case Mr. Campbell was talking about, where we have a cyclical decline in demand and output decreases. There will now be a price that covers only variable cost but not fixed cost. Under those circumstances, would you find that a company is dumping?
Mr. Brimble: We're getting into the details of how the calculations are in fact carried out. If the product is sold in the same domestic market, we will look at what price it is being sold at in the domestic market. There are fairly complex provisions in the legislation that allow us to determine whether the sales are profitable.
If the sales are profitable in the domestic market, then we would use that as a benchmark to determine the values for the goods coming to Canada. If the sales are unprofitable in the domestic market, then we use what is referred to as a cost-plus approach, where we will factor in an amount for profit. If the product were coming in at a loss in the circumstances you outline as I understood them, I would expect that we would find dumping.
Mr. Grubel: How do you handle the length of contract, the size of discount, and all those things that are being offered to different consumers? For example, you have a booming economy and you make a five-year contract to supply steel at a certain price to a large user. Is that the price below which they can't sell abroad?
Mr. Brimble: There are provisions in the legislation that ensure that we have to compare apples with apples and oranges with oranges and make adjustments for such things as differences in trade level, differences in discounts, and differences in marketing patterns in the exporter's market and in the sales to Canada. If the committee wishes at some point to have further elaboration of the specific interpretations we've put on the regulations, we'd be quite happy to provide all of that.
Mr. Grubel: All I can tell you is that I have been in seminars and private meetings with a former chairman of the U.S. International Trade Commission, Anne Brunsdale. You may know her. She said that if you look at the theory that underlies the determination of all of those things, it is totally inconsistent with economic theory and broad understanding of what a commercial practice really is. There is a long literature in economics that says we don't really know what a price is unless we know all the dimensions of quantity discounts, time discounts, length of contracts, and all those kinds of things.
My other experience has been with Roger Phillips, the chief executive officer of IPSCO. He gave me an earful about the fact that in a regular commercial business, when you demand decreases, you don't shut down your factory just because a price falls to where you don't make any profit. You keep it open as long as you cover variable costs.
One of the important questions then is whether it is really in the interests of both American and Canadian consumers to have complex rules that say that unless you cover fixed costs as well, you can't sell to each other during cyclical downturns. It disrupts the pattern of production and all that kind of thing. In fact, Mr. Phillips gave a lecture on this to the Fraser Institute, which I attended.
.1940
So the operations are just so complex in detail. Do you still get rooms full of computer printouts of average and variable costs and all that, or have you gone to having it all on disk now?
Mr. Brimble: I can assure you we get a lot of data, and it is a complex process, and the factors you have just mentioned are the factors we attempt to deal with under the law, and I guess they are many of the factors that will have to be considered by the committee.
Mr. Grubel: Can they be challenged? What you speak of are the procedures under the law, but you're obviously reluctant, and the eyes of non-economists obviously eyes glaze over, I can see, on those issues. Does anybody ever challenge you on the appropriateness of the procedures you use in the determination of costs?
Mr. Brimble: Oh, indeed. All our final decisions are subject to appeal to the Federal Court and also through the binational dispute settlement process in our trade with the United States. Indeed, we have been challenged on many occasions, and that is part of the process.
Mr. Grubel: On these grounds I've just mentioned, all these somewhat obscure grounds?
Mr. Brimble: On many complexities. Many complexities have been challenged, and I believe for the most part the department has shown we have taken a reasonable interpretation of the law as it is written.
The Chairman: I take it, then, we've gone on to simplify those complexities.
Mr. Grubel: Can't.
The Chairman: I'll go on to Mr. Penson.
Mr. Penson: I know Canada is one of the biggest users of trade remedy law. I gather there are many countries that don't have countervail or dumping legislation at all. In your view, is that effective for them? I gather it must be. Is it a group that is amongst the industrial countries, the OECD countries, generally, or are they all bound by trade law?
Mr. Bernes: No, all the OECD member countries do have trade remedy regimes in place. Some of them, as I say, do not apply them as between themselves and members of the European Union or in the case of Australia-New Zealand. I believe some 64 members of the WTO do have trade remedy legislation in place, out of a total membership of some 120.
But what one is finding is that increasingly, developing countries which did not have trade remedy regimes in place but did have higher levels of tariff protection, other non-tariff barriers...as they've liberalized and as those traditional barriers have declined in their protective effect, they've found there has been domestic pressure to use the rules of the WTO, which are there, and they've responded to it. So I think we've found over the last five years, certainly the last decade, that a number of developing countries that did not have systems in place before have now put them in place and are beginning to use them.
Mr. Penson: The other question I would have is this. In the event that Canada were to say unilaterally we didn't want to have trade remedy law in those two areas, would we have to beef up our competition law and that type of thing in order to bring it more in line with the United States, which is our major trading partner?
Mr. Bernes: That is one of the key issues. What one wants to ensure is that anti-competitive practices are not engaged in. If one does have adequate competition rules, then we would argue, as we have in the North American context, that there is no need for trade remedy legislation and it's inappropriate. I don't think that would necessarily require a harmonization of competition rules. But clearly both parties would want to be assured the system in place in the other country in fact does adequately address competitive issues.
The Chairman: Mr. Campbell.
.1945
Mr. Campbell: I feel like I'm in the old college bowl. I have the toss-up questions after Mr. Grubel and Mr. Penson. I want to follow up on the comments of both of them.
On the last point, about the substitution of competition law for anti-dumping, I'm not aware of the suggestions that you would replace countervailing duty regimes with competition law purely in the dumping area. Would it make sense - predatory pricing in place of anti-dumping?
Surely you would need a harmonized continental anti-trust law or competition law, or else we would have to go around doing something we don't do with our current competition law, which is apply it extraterritorially. The Americans are quite good at that, but we generally don't do it.
Do you want to elaborate? Could it work in the absence of a harmonized competition law?
Mr. Bernes: This is an issue that has been explored in the context of one of the NAFTA working groups.
I might ask John Gero of the Department of Foreign Affairs to comment on this.
Mr. John Gero (Director, Trade Remedies Division, Department of Foreign Affairs and International Trade): I don't think you need to have a North American competition law or in fact even a harmonized competition law. It's not necessarily an extraterritorial application of Canadian or U.S. competition law. After all, what would be looked at in a particular country is whether somebody through predatory pricing is injuring the Canadian market. Therefore that can be done in a Canadian context under Canadian law, even if it's an American supplier, for example, that's doing that. So that wouldn't necessarily be an extraterritorial application of Canadian law to do that.
Mr. Campbell: You're absolutely right to point that out. So it would be on the basis of what we used to call an effects doctrine, I guess. The effect would be in Canada.
Mr. Gero: Right.
Mr. Campbell: So that would give you your jurisdiction over the foreign producer.
Mr. Gero: That's right.
Mr. Campbell: That's interesting.
To follow up on something Mr. Bélisle said about the whole area of injury, our statute has the injury provision in it because by international agreement we must prove injury. So that's something we have in our statute as a result of that.
It's useful to clarify that we're not looking beyond anti-dumping and countervailing duty today or in this review, but we do have other trade remedies. Would they also be subject to the proof of injury? I am thinking of the case Mr. Bélisle brought up, where there was no injury but there was obviously some trade action - dumping but no injury, or a surge in imports, or something like that.
Mr. Bernes: Of course other trade instruments are available. In a case where the goods may be causing injury but are not subsidized or dumped goods, there is provision for the government to take a safeguard action. That requires an injury determination, which under the WTO rules is of a higher standard than that established for dumping or for subsidized goods.
Mr. Campbell: So that wouldn't answer Mr. Bélisle's example.
Mr. Bernes: No, it would be the higher threshold. And because the goods are traded fairly, in a sense, for a government to take action to protect those goods it would have to provide some compensation to the other trading partner or it could face retaliation.
Mr. Campbell: Following up on Mr. Grubel's further discussion on pricing and economic theory - and I can't argue with any of it - the reality is that we still find dumping where we look for it, which leads one to conclude - and we're not the only country that does so - that the way in which the statute is drafted here and the way in which it is drafted and applied elsewhere provide the regulators with a fair bit of discretion to find dumping. I guess the pertinent question therefore is that, while you've given us statistics about how many dumping orders are in place, how does that correspond to the number of investigations you've made and how does that compare to the experience in other countries?
.1950
Mr. Bernes: Certainly we'd be happy to provide you and the committee with more detailed information on that.
Mr. Campbell: It really does go to Mr. Grubel's question. It's interesting. If the theory is right, it should be almost impossible to find dumping, but in fact it's found often.
Mr. Grubel: When it suits the American politician. Of course our system is free from influence.
Mr. Campbell: But we've just heard testimony, Mr. Chairman, that contrary to the public perception, we're quite effective in dumping actions in this country and we use our dumping law in fact more than the Americans do.
The Co-Chairman (Mr. Duhamel): Were you seeking a comment from Mr. Bernes?
Mr. Campbell: I think he said he might look at that. I don't think I need that information; it was really more to further the discussion.
Mr. Grubel: If it were easy, I would really love to have this information: namely, the number of actions brought against Canada by the United States, weighted by the value of trade affected so we can add it up, versus what we brought against the United States in Canada, and then the share where we found against the Americans and they found against us, both the number and the value of the trade involved. That would be very interesting to know.
Mr. Campbell: Mr. Chairman, you might ask our witnesses for that only if it's readily available.
Mr. Grubel: Yes.
The Co-Chairman (Mr. Duhamel): That's exactly what Mr. Grubel said.
Mr. Campbell: I would not want to distract them from their work.
The Co-Chairman (Mr. Duhamel): Mr. Grubel, to follow up on your comment, you said you would like the information only if, in the judgment of Mr. Bernes, who will make the decision, it's doable and is not beyond a certain number of resources.
I'll leave that with you, Mr. Bernes, if I may.
Mr. Grubel: Push a few computer buttons, please.
The Co-Chairman (Mr. Duhamel): Mr. Campbell, are you finished?
Mr. Campbell: Yes, thank you.
The Co-Chairman (Mr. Duhamel): Mr. St. Denis.
Mr. St. Denis: Thank you, Mr. Chairman.
First I have a clarification. I was listening with interest to the discussion over extraterritoriality, etc., and I just need to understand something a little bit better. With respect to anti-dumping, when we attempt to measure yes or no, are we...?
I'm looking at page 11 of the background note, where we say Revenue Canada establishes normal values, i.e., non-dump export values. Do we attempt to look at that product in the context of the country of export's economic environment or within our own environment? Do we translate it as if it were produced here to attempt to determine whether it's dumped, or do we give the benefit of the doubt and attempt to determine if it's a reasonable export price in the country of origin?
Am I making myself clear?
Mr. Bernes: It's a good question, and it's not totally a simple answer. I'll ask Brian Brimble to respond to it, therefore.
Mr. Brimble: Basically the normal value is the value of that product in the market from which it is exported.
So if we're doing an investigation in the United States, we're looking at what should be the normal price of that product exported from that market. Ideally, if they sold that product on the U.S. market for $100 per unit, one would expect it should come to Canada at $100 per unit, but where we find dumping is when it sells for $100 per unit in the United States but, for whatever reasons, finds its way to Canada for $85 per unit. Then we find a $15 margin of dumping.
Mr. St. Denis: That would probably be fairly easy to determine if it were a U.S.-based export, but there must be a lot of countries where it's almost impossible to determine what is the domestic situation. Is it an unfair assumption that it's difficult sometimes? Do we just assume numbers that favour Canada in those cases?
Mr. Brimble: It is difficult sometimes, but when we're dealing with economies such as the United States's, with which we are very closely familiar, the task is somewhat easier.
When we're dealing with countries that might, for instance, have a state-controlled economy, then we do not have our usual investigative levers. We're not dealing with a free market situation, where we can look at what is happening in the open market. So there are provisions, then, in the legislation for us to look at alternate ways of coming up with a value. We will have to look further afield to come up with the specific normal values to determine whether dumping occurs.
.1955
The Co-Chairman (Mr. Duhamel): Can I ask you to finish?
Mr. St. Denis: Actually, it was a separate question, Mr. Chairman.
The Co-Chairman (Mr. Duhamel): But you're going to finish off?
Mr. St. Denis: Yes. With your indulgence, on page 10 reference is made to a recent study on the comparability of the two systems - i.e. Canada and the U.S. - that reveals there are generally comparable terms with respect to the two systems. Would that study be beneficial to us? Could we have copies of it? Would it be helpful to us or would it be just too technical for most of us - or for some of us anyway - to utilize?
Mr. Bernes: We're certainly prepared to make that available. I think one would find the summary readily digestible. It's rather voluminous. Some of the more detailed parts -
Mr. St. Denis: Yes. Again, I don't want to create unnecessary work either, but if it would be helpful... It suggests to me that I should ask about the ongoing negotiations to develop dumping and subsidy codes between Canada and the U.S. Where are we with that? Are we close? Are we eons from getting a resolution? I'm thinking of steel and dairy, for example, where we just seem to be going nowhere.
The Co-Chairman (Mr. Duhamel): Mr. Bernes, do you want to reply?
Mr. Bernes: Yes. Under NAFTA there was a working group established with a two-year mandate to examine how to reduce disputes in the trade remedies area. That working group concluded its two-year mandate in December and is to report shortly to a meeting of the commission, the three parties at the ministerial level.
It will be up to the commission to take a decision as to what further steps... It remains the objective of the Canadian government to seek to not only reduce disputes in this area within NAFTA but to eliminate trade remedies as an instrument in North American trade, and we will be continuing to pursue that objective through all possible avenues.
However, some would suggest that an election year in the United States is not the most propitious time. And I think it's fair to say this is not a short-term objective. Frankly, it's going to be a long haul before we get the Americans to recognize the merits of the arguments.
Mr. St. Denis: Thank you, Mr. Bernes. Thank you, Mr. Chairman.
The Co-Chairman (Mr. Duhamel): Thank you, Mr. St. Denis.
Gentlemen, I made a commitment to complete this by 8 p.m. Some of you are making it difficult for me to reach that objective. I shall show - at least for tonight - some small bit of flexibility.
I will go to Mr. Campbell for a very short intervention, then to Mr. Bélisle, and then I will conclude quickly.
Mr. Campbell: Thank you, Mr. Chairman. I don't wish to create a precedent at our first meeting. We want to do things at this committee as we always do, on time and under budget.
Would you just confirm if it is correct that our current law does not assist in the following situation? Again, this goes to the whole question of how the world economy functions today. A Canadian producer who is disadvantaged because a foreign producer in China, say - I don't know of a particular example, but I'll use China - benefits from inputs dumped from a third country into China, the country where the competitor is... A producer in Canada is competing against a producer in China who benefits from dumped goods from the United States, say, into China.
Does our law in any way address that? I understand from conversations I've had that it is occurring out there and that our law doesn't directly apply to that situation. There may not be any way to get at that. In this example, if China does not have an anti-dumping regime or doesn't use it in that case, a Canadian producer is disadvantaged and there's nothing we can do about it.
The Co-Chairman (Mr. Duhamel): Mr. Bernes.
Mr. Bernes: May I ask Mr. Brimble to respond to that?
Mr. Brimble: To my knowledge, I believe that's correct. We are unable to address situations where there is input dumping into another market through the laws we have in place at the present time.
Mr. Campbell: Thank you, Mr. Chairman.
[Translation]
The Co-Chairman (Mr. Duhamel): Mr. Bélisle.
Mr. Bélisle: Mr. Bernes, you mentioned the fact that a report on countervailing duties is about to be published. When do you think this document could be made available to the members of the Committee?
.2000
[English]
Mr. Bernes: Sorry, are you referring to...?
[Translation]
Mr. Bélisle: I could reword my question.
[English]
Mr. Bernes: It can hopefully be available later this week. In fact, some of the staff may already have it.
[Translation]
Mr. Bélisle: Thank you.
[English]
The Co-Chairman (Mr. Duhamel): I'd like to thank our witnesses.
Before we end the meeting, I'd like to make a couple of brief comments. In informal discussions I've had with members, I believe the following was agreed to, subject to final determinations by the committee. It would be appropriate for the researcher to identify the questions raised here tonight that we will want to address, but also quite appropriate for members to submit questions that they feel need to be addressed, particularly as a result of the discussions tonight. Perhaps you could do that over the next short while. It makes it easier for everyone.
The other point made was that during the summer we would attempt to come up with a draft work plan for the fall. In other words, we would put in black and white some possibilities for how we might proceed, again subject to final determination by the committee. The conclusion is that we would begin the work in earnest in the fall.
A point has also been raised about a possible meeting during the summer. I said I would hold that and explore it informally with colleagues before making a final decision.
Unless I'm challenged on those points in terms of their being inaccurate or inappropriate, I shall call the meeting to an end. Are there questions, points or corrections?
[Translation]
Thank you to all the witnesses.
[English]
The meeting is adjourned.