Wheels in motion to tax Chinese bikes
OTTAWA -- The federal trade watchdog is calling on Ottawa to slap hefty surtaxes on foreign bicycle imports -- nearly half of which come from China -- in a case that's expected to embolden other industries to seek government protection from Chinese competition.
"It will give it a real shot in the arm," Ogilvy Renault trade lawyer Greg Somers said of how the Canadian International Trade Tribunal (CITT) decision might encourage other beleaguered sectors to seek similar help from Ottawa.
"It definitely presents a viable alternative strategy to offshoring your own production to China."
In a rare move, the CITT is recommending Ottawa enact emergency protection measures to shelter domestic bike makers from what it has concluded has been a sharp and sudden influx of offshore imports, causing serious injury.
The tribunal is calling for global safeguard surtaxes for three years, starting at 30 per cent and declining annually to 25 per cent and then 20 per cent. Canada's free-trade agreement partners and most developing countries would be exempted, but the surtax would hit the biggest importers including China, the Philippines, Thailand and Vietnam.
It was responding to a complaint launched by Canada's two largest remaining bicycle makers, Procycle Group Inc. and Raleigh Canada Ltd., which have factories in Quebec.
It's only the third time in 12 years that the CITT has called for so-called global safeguards to protect a domestic industry. The last time Ottawa used safeguard protections was in 1993 to protect the beef industry. In 2002, it ignored a CITT call for safeguards to protect steel makers because acting could have hurt trade relations with the United States. Trade watchers say the CITT's bicycle surtax recommendation is a hot political potato for the minority Liberal government.
The government is expected to head to the polls at some point in the next six months.
Finance Minister Ralph Goodale and the rest of the federal cabinet will have to choose between acting to protect factories in the vote-rich province of Quebec and irritating China, the economic juggernaut with which Canada is trying to develop closer trade ties, they say.
Other industries are watching the bicycle case closely. Canadian barbecue makers have already launched a safeguard request against China and lawyers say tobacco and furniture makers are weighing their options too.
The CITT urged Ottawa to move quickly, noting the 2006 bicycle season was already under way. "To wait to impose the surtax until the 2007 bicycle season would carry the risk of increased injury to the domestic producers over the interim period," the tribunal said in its decision.
Mr. Goodale will study the CITT report before responding, his office said.
There is no deadline for Ottawa to act, and Toronto trade Lawrence Herman with Cassels Brock suggested the government might want to delay any reaction until after the next election, expected to take place by February, 2006.
The recommended surtax would hit mass-market bikes that retail for about $400 or less -- a popular price range for Canadian buyers.
Canadian retailers warn the surtax will hurt their business, drive up prices and reduce consumer offerings by making some imports prohibitively expensive.
"It might save the jobs, in the short term, of two Quebec plants -- and then it will affect an industry that employs more than two million Canadians, which is retail," said Diane Brisebois, president of the Retail Council of Canada.
The Chinese embassy in Canada did not return phone calls yesterday but Peter Clark, a trade consultant acting for an importer opposed to the safeguards, said Beijing sent at least three officials to monitor the CITT bike inquiry.
He said China will be upset if Canada enacts safeguards. "Their reaction will be certainly neither benign nor resigned," Mr. Clark said. Observers expect it will launch a World Trade Organization challenge if Canada imposes the surtax.
Michael Flavell, lawyer for Procycle and Raleigh, said his clients will have to stop making bikes in Canada if Ottawa doesn't impose the surtax and offshore imports remain at current levels or rise.
The retail bicycle market in Canada is worth as much as $300-million in annual sales, but market share held by Canadian producers has plummeted in recent years, sliding to 30 per cent in 2004 from 58 per cent in 2000. Imports now control 70 per cent of the market.
