Special Investigation Measures Act
International trade has opened up an avenue that allowed countries to trade freely. The benefits include economic growth, improved relations amongst nations, gain in the market share, stabilizing markets, domestic competition and gain in technology. However, challenges like dumping and subsidy still occur. Subsidizing occurs if goods imported in to a country profit from the assistance of the foreign government, it is offset by imposing a “countervailing duty”. On the other hand, dumping occurs if goods exported to a country are sold at a price, lower than the prevailing market price of that country (Kerr & James 289). To offset dumping, an anti-dumping duty is applied. Most countries have a process of dealing with dumping. In Canada, the Special Import Measures Act (SIMA) is the major legislation that deals with the guarding of domestic industry. It defends the domestic producers from grievance and inequitable competition. SIMA is under the agreement establishing the world trade organization. Anti-dumping measures are applied by SIMA in the event that dumping occurs. The purpose of this paper is to look at a dumping case that involves bicycles and frames. It illustrates the process of identifying such a case and the measures taken by the government.
“Bicycles and frames” Scenario
The major bicycle producers in Canada are Groupe Procycle Incorporated, Raleigh Canada Limited and the Victoria Precision Incorporated together with other small producers manufactured approximately 1.49 million units in 2001. The total units imported were 784,000 units, which is 53%of the Canadian market. The imports from Chinese Taipei and People’s Republic of China amounted to 486,000 units, which is approximately 62% of the total imports. The manufacturers filed a complaint because the exports were injuring their market. These bicycles are two- wheeled with a frame, drive train, seat, handlebar and brakes. The description of the bicycles was given as assembled and unassembled with a wheel diameter of 16 inches (40.64 cm) excluding bicycles with an FOB Chinese Taipei and People’s Republic of china selling price exceeding CANS$252 and folding bikes”. The bicycles frames were also from Chinese Taipei and the People’s Republic of china with a selling price exceeding CAN$50.the goods were classified in the harmonized system.
The Canadian bicycles’ manufacturers filed complained about certain bicycles and frames exported from FOB Chinese Taipei and People’s Republic of China as dumping. Following this claims, the Canadian International Trade Tribunal initiated an inquiry to assist the claims. A formal investigation was initiated on May 15, 1992. A preliminary finding was made on August 13, 1992 and the final finding was done on December 11, 1992. This finding was later extended to December 10, 1997 after amendment. On December 11, 1992 with accordance to subsection 43(1) of SIMA, the tribunal found that the dumping of bicycles was causing material injury to the Canadian industry. However, the frames imported from Chinese Taipei and the People’s Republic of china had not caused, but it was likely source of material injury to production. On March 24, 2005, the Canadian International Trade Tribunal commenced another inquiry following a second complaint filed by the bicycle manufacturers (Kanargelidis & Lindsay 1).
SIMA Investigation— complainant by Canadian bicycle manufacturers
The Canadian bicycle manufacturers present the complaint on behalf of the three major producers and the other small producers. These manufacturers include Groupe Procycle, Incorporated, Raleigh Canada Limited, Victoria Precision Incorporated and cycles Devinci Incorporated. Other parties interested in providing information included mass merchants, importers, foreign trade association, bicycle dealers, trade unions, governments of several nations and a union. The Canadian International Trade Tribunal gathered information based on the claims and from other sources as well. Following subsection 31(2) of SIMA, the complaint has met the requirements needed.
Preliminary Determination—-evidence of dumping by the Canadian International Trade Tribunal
It was determined that the increase in bicycle imports caused serious damages to the domestic manufacturers. The number of bicycles increased every year, in 2004, the number increased by 98% compared to 2003. The highest increase was in 2001 and 2003. The tribunal found that the domestic manufacturers had been price competitive in the past, an imposition of anti- dumping was not likely to hinder the competition. The tribunal also determined that the bicycle manufacturers were capable of producing enough bicycles to meet the country’s demand. The tribunal was satisfied with the high quality of the Canadian bicycles. Bicycles with an F.O.B selling price higher than CAN$325 were excluced from the pronouncement, as they were not cause of injury. The grievance cause by dumping was in form of sales volumes, revenue, market share, employment, investment, decline in production, reduced gross margins and net incomes and cash flow.
Based on the evidence, on september1, 2005, the Canadian International Trade tribunal made a report, which determined that the increase in the number of imported bicycles had caused damage to the bicycle industry in Canada. They recommended that compulsory surtax be imposed on imported bicycles for three years. Other factors like intra-industry competition, failure of domestic manufacturers to tender new designs and existence of licensed products were investigated but it was not a main cause for the injury. This ruling did not please the Chinese; who believed it was a mistake since some pertinent rules of the world trade organization were not considered. In regards to this inquiry, the government did not take a negative or positive action. No valid report on subsidizing was made.
Many nations have laws that defend their domestic industries against dumping. This is in accordance to the General Agreement on Tariffs and Trade (Article VI) which permits actions against dumping (Czako, et al 30). Dumping often occurs due to problems in shipment and insolvent importers. Importers use this as an opportunity to boost the sales volume and enlarge their market share. The Canadian International Trade Tribunal was established to inquire as to whether the dumping of imported goods or subsidizing is causing injury to domestic industries. The Canada border services agency is not allowed to impose anti-dumping duty on dumped goods unless the Canadian International Trade Tribunal has verified the claim. This duty will offset the price benefit that the dumped goods have and gives the Canadian industries to compete in a manner that is just. In 2005, a compulsory surtax was imposed on imported bicycles for three years to protect the domestic industries against dumping.
Canada Border Services Agency. “certain bicycles and frames from Chinese Taipei and the People’s Republic of China” Government of Canada, August 15, 2002. Web. November 22, 2010.
Canada Border Services Agency. “bicycles and frames” Government of Canada, April 2, 2003. Web. November 22, 2010.
Czako, Judith, Johann, Human and Jorge Miranda. A Handbook on Anti-Dumping Investigations. Cambridge: Cambridge Univ. Press, 2004. Print.
Kanargelidis, Greg and Lindsay, Blakes. Canada Border Services Agency. December 1, 2006. Web. November 22, 2010 .
Kerr, William, and James, Gaisford. Handbook on International Trade Policy. Cheltenham, UK: Edward Elgar, 2007. Print.