WTO Arbitrator Sets Retaliatory Methodology for Canada in Response to US CV Duties
A World Trade Organization arbitrator determined the methodology Canada can use to set the level of retaliatory measures it can impose on goods imported from the U.S. if the U.S. applies countervailing duties on Canadian goods based on a measure found to be inconsistent with WTO rules. In the July 13 decision, the arbitrator said Canada would set the appropriate level of nullification or impairment in the future "based on the four-variety Armington model," which was recommended by the U.S. and can quantify the trade decline experienced by Canada through a particular use of the U.S.'s adverse facts available measures in CVD proceedings.
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When the U.S.'s WTO-inconsistent conduct is used again to impose CVDs on Canadian goods, Canada can also then suspend concessions or other obligations in the goods sector at an equivalent amount, the arbitrator said. The decision further declared that Canada can adjust a given level of suspension to account for inflation.
The dispute stems from U.S. CVD on imports of supercalendered paper from Canada and the use of AFA to find that other forms of assistance discovered during the course of a CVD investigation are countervailable subsidies. Canada brought its case to the WTO, where the original dispute settlement panel found Canada put forth sufficient evidence to find such use of AFA constituted "ongoing conduct" and was inconsistent with the WTO's Agreement on Subsidies and Countervailing Measures. The Appellate Body upheld the panel's findings in a 2020 report.
Canada then submitted a request for permission to retaliate against U.S. imports on the basis that the U.S. did not tell the Dispute Settlement Body of its intentions to implement the rulings. The U.S. responded that the level of retaliation should be set at zero because the CV duty order on supercalendered paper was revoked in 2018 and that was the sole instance where the "OFA-AFA 'ongoing conduct' measure was found to exist and apply to Canada." The arbitrator's decision confirms Canada's ability to retaliate should the U.S. employ the measure again.
Assistant U.S. Trade Representative for Public Affairs Adam Hodge released a statement following the ruling, expressing satisfaction that the decision rejects Canada's proposal and adopts the U.S.'s economic model as the basis of the decision. However, Hodge said the U.S. is "deeply troubled" the arbitrator released a decision at all.
"Canada is not currently suffering any economic harm from the disputed conduct, and may never experience any economic effect whatsoever, given that the United States removed the challenged measure years ago," Hodge said. "Canada’s pursuit of this arbitration under these circumstances is a further demonstration of a broken system that emboldens Members to litigate for the sake of litigation instead of helping Members resolve disputes." Hodge then claimed that the decision "only reinforces" the U.S.'s call for WTO reform.
During the proceeding, the U.S. argued that the appropriate methodology for determining the level of impairment from the CV duties would be to evaluate the effects of duty rate changes in an Armington partial equilibrium model. However, the U.S. said that the use of such model should be tailored to a case-by-case application as opposed to a singular analytical framework.
The arbitrator adopted the U.S. model but with some tweaks, as opposed to the U.S. version, which relies on an unknown number of varieties but on a fixed number of four varieties. Those varieties are U.S. domestic shipments, affected Canadian imports, unaffected Canadian imports and rest of world imports. "Thereby, imports from all affected companies would be grouped together as a single variety, without regard to other aspects of the CVDs assigned to them. The same would go for unaffected companies," the report said.