Canada reacts to invasion of (not on) bicycles

UNCLAS OTTAWA 001021

SIPDIS

4320/ITA/MAC/WH/ONIA/ for GWORD

E.O. 12958: N/A
TAGS: ETRD CA CITT NAFTA
SUBJECT: Canada reacts to invasion of (not on) bicycles


Summary: The Canadian International Trade Tribunal (CITT) has
commenced a global safeguard inquiry into a complaint regarding
the importation of bicycles and finished painted bicycle frames.
In response to a complaint from Canadian bicycle manufacturers who
fear that low-priced imports (primarily from Asia and Eastern
Europe) will drive their domestic production out of business, the
CITT will examine the possible need for higher import duties on
bicycles. Although U.S. manufacturers should be exempted under
NAFTA rules (CITT will determine eligibility for exemption based
on questionnaires that have been sent to foreign producers,
importers, domestic producers, and purchasers),U.S. exporters
could be affected. Since over 95% of U.S. bicycle companies
manufacture their products overseas, the NAFTA exemption is almost
meaningless. End Summary.


1. In January, CITT informed the Embassy that it had received a
complaint from the Canadian Bicycle Manufacturers Association
(CBMA) requesting that CITT "initiate a global safeguard inquiry
into the importation of bicycles, assembled and unassembled, with
a wheel diameter greater than 15 inches...and finished painted
bicycle frames, assembled or unassembled." This is only the
second time a Canadian industry has asked for safeguard measures
against imports. The Canadian industry is under pressure from
increasing low-cost bicycle imports, primarily from China and
other Asian countries. Canadian bicycle manufacturers claim that
imports increased by close to 60 percent in the last few years and
now comprise the majority of the Canadian market. (Comment: A
major U.S. bicycle manufacturer claims, however, that Canadian
manufacturers still have over half of the Canadian market.
Numbers from a 2002 Foreign Commercial Service (FCS) report
indicate that as recently as 2001, Canadian manufacturers held the
majority of the Canadian market, assisted by anti-dumping
legislation which limits the number of bicycles under $274 allowed
to be imported into Canada. However, one of the three main
Canadian manufacturers in 2001 has since gone out of business.)


2. On March 24, CITT announced that it had decided to commence an
inquiry into the complaint, to determine "whether bicycles...are
being imported into Canada from all sources in such increased
quantities and under such conditions as to be a principal cause of
serious injury, or threat thereof, to domestic producers of like
or directly competitive goods..." CITT told us that
questionnaires had already been sent out to concerned parties
(questionnaires can be viewed at the CITT website,
http://www.citt.gc.ca/question/index_e.asp),and that CITT had
already received some completed questionnaires.


3. Econoff spoke with a representative of one of the largest
bicycle companies in the United States (a U.S.-based company which
imports from Asia: over 95% of bicycles in the United States are
imports, with the remaining small percentage being high end, high-
cost bicycles made in the United States). He said that a potential
Canadian safeguard action on bicycles worries U.S. exporters and
Canadian importers. Specifically, Wal-Mart, Toys R Us, Canadian
Tire and Zellers, all major retail chains, face significantly
higher prices if CITT's inquiry results in tariffs or other import
restrictions.


4. This U.S. company had, in the past, been reassured that their
bicycles imported from Bangladesh and India would not be affected
since they are developing countries. CBMA's new safeguard
petition, however, could affect all bicycle imports, regardless of
national source. Canadian retailers also fear further limits on
their ability to obtain less-expensive bicycles to sell to
Canadian consumers. The lobby group for independent bicycle
retailers, Bicycle Trade Association of Canada, has publicly
stated, "Anything that is going to increase the cost of bikes is
not a positive thing for independent bike stores and dealers." The
CBMA has suggested a 48% duty, a level that would severely harm
retailers and U.S. companies alike. The U.S. company whose
representative spoke with us could lose $10 million in business if
Canada acts against imports from Asian countries.


5. CITT will report on the inquiry no later than August 9, and
potentially-affected companies, including powerhouses such as Wal-
Mart and Canadian Tire, are rallying to inform GOC of their
concerns. Embassy Econ officers are working with FCS to track
developments.