Information on the

Application of Section 20 of

the Special Import Measures Act

("Non-market Economies")

June 2004

This document is also available in French. /

Ce document est également disponible en français.

INTRODUCTION:

This brochure summarizes the Canada Border Services Agency's (CBSA) policy regarding the interpretation and application of section 20 of the Special Import Measures Act (SIMA) and the related Special Import Measures Regulations (SIM Regulations).

The current policy regarding section 20 of SIMA came into effect in 2003. The policy recognizes the substantial progress that many countries that formerly had non-market economies have made towards market liberalization.

The provisions of section 20 of SIMA and the related SIM Regulations can be found at Appendix I.

Section 20 of SIMA only applies to anti-dumping investigations. It has no bearing on the conduct of a countervailing duty investigation.

PURPOSE OF SECTION 20:

Generally, in an anti-dumping investigation, the margin of dumping of the goods under investigation is determined by reference to normal values that are based on the selling price of like goods in the country of export or on the basis of the full costs of the goods exported to Canada. However, section 20 of SIMA requires that the determination of dumping in respect of the sector within the country under investigation that has certain "non-market" characteristics be determined using special rules. This most typically involves the determination of normal values using prices and costs of like goods in a third country (i.e. a "surrogate" country).

CONDITIONS FOR THE USE OF SECTION 20:

The normal value of imported goods will be determined pursuant to section 20 of SIMA where the goods sold to an importer in Canada and shipped directly to Canada from a country where, in the opinion of the President of the CBSA:

• The government of that country has a monopoly or substantial monopoly of its export trade; and
• Domestic prices are substantially determined by the government of that country and there is sufficient reason to believe that they are not substantially the same as they would be if they were determined in a competitive market.

Both of these conditions must exist in the sector under investigation before the provisions of section 20 are applied in the determination of normal values.

However, in respect of prescribed countries, only the second condition is applicable. The People's Republic of China is the only country that has been prescribed for purposes of this provision (see SIM Regulation 17.1).

The provisions of section 20 are applied on a sectoral basis rather than on the country as a whole. The sector to be reviewed will normally only include the industry producing and exporting the goods under investigation.

The fact that the President has found that the conditions of section 20 exist in a particular sector in a country will normally not have any relevance on a similar determination being made in respect of another sector that is under investigation in that same country.

It is important to note that SIMA contains no provisions for making an overall, blanket designation that a country or a sector within a country is either "market" or "non-market" in its economic organization. Section 20 is applicable in any anti-dumping investigation involving any country where the conditions set forth in section 20 exist.

KEY PRINCIPLE OF THE SECTION 20 POLICY:

The key principle of the section 20 policy can be stated as follows:

• Regardless of the country, sector or product under investigation, anti-dumping investigations and re-investigations (administrative reviews) are to be initiated on the presumption that section 20 of the Act is not applicable to the sector under investigation unless there is evidence that suggests otherwise.

Whether or not there is information that suggests that the conditions described in section 20 exist in the sector is dependent on the particular case.

INITIATION OF NEW INVESTIGATIONS:

If a complainant alleges that goods are exported to Canada from a country in which the conditions described under section 20 apply, the complainant must provide information to support the allegation.

The President will not initiate a section 20 inquiry if there is insufficient evidence that the conditions of section 20 may exist in the sector under investigation.

If the complainant cannot provide sufficient evidence regarding the conditions of section 20, the evidence of dumping provided in the written complaint must be based on prices or costs of the goods in the country of export rather than prices and costs in a third country.

INITIATIONS OF RE-INVESTIGATIONS (ADMINISTRATIVE REVIEWS):

Re-investigations are also initiated under the presumption that section 20 is not applicable to the sector under investigation. Interested parties should provide facts and supporting information to the CBSA if they believe that the conditions of section 20 exist in the sector under investigation.

SUFFICIENCY OF EVIDENCE FOR PURPOSES OF INITIATING A SECTION 20 INQUIRY:

The CBSA will initiate a section 20 inquiry if it has sufficient evidence indicating that the conditions of section 20 may exist in the sector under investigation. A section 20 inquiry will usually be conducted in parallel with an investigation or a re-investigation. A "section 20 inquiry" is not a term found in SIMA but is simply used here to refer to a process whereby information is collected from various sources in order to decide whether section 20 applies in a particular case.

When evaluating information which suggests that section 20 conditions may exist in a particular sector in new investigations and in re-investigations, the CBSA will rely on a two-part threshold test to determine whether to proceed with a section 20 inquiry.

The first part of the test requires that the evidence presented in support of an allegation be relevant and reasonably reliable. The second part asks whether this evidence, if later found to be accurate, would be capable of reasonably supporting a positive determination as to the applicability of section 20.

It should be noted that a section 20 inquiry may be undertaken in the later stages of an investigation or re-investigation should relevant information become available.

FORMING THE OPINION UNDER SECTION 20:

Once a section 20 inquiry is undertaken, the President may, having regard to the information collected, form an opinion that the conditions described under section 20 exist in the sector under investigation. The President may form this opinion based on information obtained from the government of the country of export, foreign producers and exporters, Canadian producers, and any other source of relevant information.

In forming this opinion, the President will consider whether the conditions of section 20 exist in the sector under investigation because of direct or indirect actions on the part of government and whether these actions result from the application of laws or practice.

PROCEDURES IF SECTION 20 CONDITIONS ARE FOUND:

If the President forms the opinion that the conditions of section 20 exist in the sector under investigation, the normal value of the goods under investigation normally will be determined in accordance with one of the methods provided for in section 20 of the Act. These methods include:

• the price of like goods sold by producers in any country designated for that purpose by the President, adjusted for price comparability;
• the full cost of producing and selling like goods plus a reasonable amount for profit as determined in a designated country;
• the selling price in Canada of like goods imported from a designated country, adjusted for price comparability.

An opinion that the conditions of section 20 exist in the sector under investigation may be reviewed at any time. Such a review would normally take place in the context of a re-investigation (administrative review).

FURTHER INFORMATION:

Further information concerning section 20 of SIMA can be obtained from the Director, Operational Policy Division, at the address below:

Canada Border Services Agency
Anti-dumping and Countervailing Directorate
11^th Floor
100 Metcalfe Street
Ottawa, Ontario.
K1A 0L8
Telecopier: (613) 954-2510

Anti-dumping and Countervailing Directorate Website:

http://www.cbsa-asfc.gc.ca/sima/

June 2004

APPENDIX I

Legislative References

Section 20 - Special Import Measures Act

20. (1) Where goods sold to an importer in Canada are shipped directly to Canada

the normal value of the goods is

such price to be adjusted in the prescribed manner and circumstances to reflect the differences in terms and conditions of sale, in taxation and other differences relating to price comparability between the goods sold to the importer and the imported like goods in relation to their sale by the importer thereof.

(2) The Commissioner may not designate a country under paragraph (1)(d) if

R.S., 1985, c. S-15, s. 20; 1994, c. 47, s. 156; 1999, c. 12, s. 7, c. 17, ss. 183, 184; 2002, c. 19,

s. 16.

Special Import Measures Regulations

State Trading Countries

14. For the purpose of determining the normal value of any goods pursuant to paragraph 20(1)(c) of the Act, sections 4 to 6, 9 and 11 shall be read with the substitution of

1. the expression "country of production" for the expression "country of export", wherever that expression occurs therein; and
2. the word "producer" for the word "exporter", wherever that word occurs therein.

SOR/2000-138, s. 3.

15. For the purpose of determining the normal value of any goods pursuant to paragraph 20(1)(d) of the Act, sections 4 to 6 shall be read with the substitution of

1. the expression "vendor in Canada of the imported like goods" for the word "exporter", wherever that word occurs therein; and
2. the word "Canada" for the expression "the country of export", wherever that expression occurs therein.

SOR/2000-138, s. 12.

16. For the purpose of determining the normal value of any goods pursuant to paragraph 20(1)(d) of the Act, the price of like goods sold in Canada shall be adjusted by deducting therefrom an amount equal to the sum of

1. all costs, including any duties and taxes, that result from the importation of the like goods or their sale by the importer to the purchaser in Canada;
2. the amount of profit, determined in accordance with section 17, made by the importer of the like goods on their sale;
3. all costs, charges and expenses incurred by the importer or exporter of the like goods, or any other person, in preparing the like goods for shipment to Canada that are additional to the costs, charges and expenses generally incurred on sales of the like goods for domestic consumption in the country of export; and
4. all other costs, charges and expenses incurred by the exporter or importer of the like goods, or any other person, that result from the exportation of the like goods or arise from their shipment to Canada.

SOR/2000-138, s. 12.

17. For the purposes of paragraph 16(b), the amount of profit made by an importer on the sale of like goods in Canada is

1. the amount of profit that generally results from sales of like goods by vendors in Canada who are at the same or substantially the same trade level as the importer of the like goods to purchasers in Canada who are not associated with those vendors;
2. if the amount described in paragraph (a) cannot be determined, the amount of profit that generally results from sales of goods of the same general category as the like goods by vendors in Canada, who are at the same or substantially the same trade level as the importer of the like goods to purchasers in Canada who are not associated with those vendors; or
3. where the amounts described in paragraphs (a) and (b) cannot be determined, the amount of profit that generally results from sales of goods that are of the group or range of goods that is next largest to the category referred to in paragraph (b), by vendors in Canada who are at the same or substantially the same trade level as the importer, to purchasers in Canada who are not associated with those vendors.

SOR/96-255, ss. 6, 25.

17.1 (1) For the purposes of subsection 20(1) of the Act, the customs territory of the People's Republic of China is a prescribed country.

(2) This section ceases to have effect on December 11, 2016.

SOR/2002-349, s. 1.