WORLD TRADE  
ORGANIZATION  G/SG/N/6/CAN/3 
9 January 2006 
 (06-0058) 
Committee on Safeguards Original:   English/ 
 French 
 
  
NOTIFICATION UNDER ARTICLE 12.1(a) OF THE AGREEMENT 
ON SAFEGUARDS ON INITIATION OF AN INVESTIGATION 
AND THE REASONS FOR IT 
 
CANADA 
 
Unmanufactured Bright Virginia Flue-Cured Tobacco
 
 
 
 The following communication, dated 5 January 2006,  is being circulated at the request of the 
Delegation of Canada.  
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  Pursuant to Article 12.1(a) of the Agreement on Safeguards, Canada provides this notification 
to the Committee on Safeguards of initiation of a global safeguard enquiry concerning certain tobacco 
products.  1. Specify the date when the investigation was initiated 
 
 The global safeguard investigation was initiated by the Canadian International Trade Tribunal 
(the Tribunal) on 29 December 2005.  2. Specify the product subject to the investigation 
 
 The product under investigation is unmanufactur ed bright Virginia flue-cured tobacco 
products, whether stemmed or stripped, or partly  or wholly stemmed/stripped for use in the 
manufacture of cigarettes, tobacco sticks and other manufactured tobacco products (flue-cured 
tobacco). 
 
3. Provide the reasons for initiating the investigation  
 
 On 17 October 2005, the Ontario Flue-cured T obacco Growers Marketing Board (the Board) 
submitted a complaint to the Tribunal, alleging th at the increased volume of imported flue-cured 
tobacco has caused, or threatens to cause, serious injury to Ca nadian tobacco producers.  On 
29 November 2005, the Tribunal determined that th e complaint was properly documented, i.e., that it 
contains the elements needed by the Tribunal to d ecide whether or not there are sufficient grounds to 
warrant the launching of an enquiry   
 The Tribunal is satisfied that the informa tion it examined discloses a reasonable indication 
that the goods that are the subject of the complain t are being imported in such increased quantities and 
under such conditions as to cause, or threaten to cau se, serious injury to domestic producers of like or 
directly competitive goods. G/SG/N/6/CAN/3 
Page 2  
 
  
4. Additional Information 
 
 In the investigation, the Tribunal will determ ine whether the goods subject to the enquiry 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.   Notice of initiation of the investigation can be found on the Tribunal’s website at 
http://www.citt.gc.ca
.  This notice contains all pertinent in formation relating to the conduct of the 
investigation, including the schedule of enquiry an d the procedure for participation by persons or 
governments.  
THE TRIBUNAL’S STATEMENT OF REASONS 
 A. BACKGROUND 
1. On 17 October 2005, pursuant  to subsection 23(1) of the Canadian International Trade 
Tribunal Act
1, the Board submitted a complaint to the Tri bunal requesting that the Tribunal initiate a 
global safeguard enquiry into the importation of unm anufactured bright Virginia flue-cured tobacco, 
whether stemmed or stripped, or partly or wholly  stemmed/stripped, for use in the manufacture of 
cigarettes, tobacco sticks and other tobacco products. 
 
2. As part of its examination of the complain t to determine whether it was properly documented, 
the Tribunal requested, on 7 November 2005 , pursuant to subsection 24(1) of the CITT Act , that the 
Board provide additional information.  On 8 Nove mber 2005, the Board provided further information 
in response to the Tribunal’s request. 
 
3. Based on its examination of the complaint and the additional information provided by the 
Board, the Tribunal determined, pursuant to subsection 25(1) of the CITT Act , that the complaint was 
properly documented.  A notice of receipt of a pr operly documented global safeguard complaint was 
issued on 29 November 2005, and was publishe d in the 10 December 2005, edition of the Canada 
Gazette , Part I. 
 
4. Pursuant to subsection 26(1) of the CITT Act , the Tribunal has decided to commence an 
enquiry into the complaint to determine whether the goods subject to the enquiry 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 ther eof, to domestic producers of like or directly 
competitive goods. Pursuant to subsection 26(2), the Tribunal will notify the Board and other 
interested parties of its decision to commence this enquiry.  In addition, the Tribunal will send a copy 
of this decision and a copy of the public complain t and other relevant public  information examined by 
the Tribunal to the Minister of Finance.  
                                                     
 
1 .R.S.C. 1985 (4th Supp.), c. 47 [ CITT Act ].  G/SG/N/6/CAN/3 
 Page 3 
 
 
 B. PRODUCT 
1. Product Definition and Description 
 
5. The product that is the subject of the complaint is unmanufactured bright Virginia flue-cured tobacco, whether stemmed or stripped, or partly or wholly stemmed/stripped, for use in the 
manufacture of cigarettes, tobacco sticks and other tobacco products (flue-cured tobacco). 
 
2. Classification of Imports and Tariff Treatment 
 
6. The subject imports are classified under cl assification Nos. 2401.10. 99.10 and 2401.20.90.91 
of the schedule to the Customs Tariff.
2 
 C. DOMESTIC
 INDUSTRY 
7. According to the complaint, the Canadian gr owers of flue-cured tobacco are the 638 members 
of the Board and one known grower located in  Prince Edward Island. Quebec had 56 growers 
represented by the Office des producteurs de tab ac jaune du Québec; however, the association has 
wrapped up operations, and most Quebec growers ha ve applied for transitional payments from the 
federal and Quebec governments to exit tobacco growing.  D. P
OSITION OF THE BOARD  
8. This section outlines a number of key submissions made by the Board.  It is not intended to be 
exhaustive. 
 9. The Board submitted that current members ha d accounted for the majority of the volume and 
value of domestic production of flue-cured tobacco every year since 1999 and that they produce goods 
that are like or directly competitive with the subject goods. 
 
10. The Board alleged that the subject goods are being imported in such increased quantities and 
under such conditions as to cause or threaten to cau se serious injury to domestic producers of like or 
directly competitive goods. It alleged that  the increase has been rapid and recent. 
 11. The Board alleged that the high degree of  substitutability between domestic and imported 
products, and the fact that import pricing has declin ed dramatically at the same time as Canadian 
export pricing has increased, supports its view that pricing levels are driving the rapid growth of 
imports in the Canadian market and the declin ing volume of sales from domestic production. 
 12. It is the Board’s contention that the domes tic industry is being seriously injured and faces 
further threat of serious injury through a decline in  the number of growers and in the acreage planted, 
loss of market share, loss of sales volume, declin ing revenues, price suppression, price erosion, and a 
foreseeable and imminent threat of further reduc tions in production volumes, market share, gross 
margins and profitability.  13. In the alternative, the Board contended that  one Canadian cigarette manufacturer’s plans to 
increase its use of imported products pose a threat of serious injury. 
 
                                                     
 
2 .S.C. 1997, c. 36. G/SG/N/6/CAN/3 
Page 4  
 
 E. ANALYSIS 
14. Pursuant to subsection 26(1) of the CITT Act , the Tribunal is required to commence an 
enquiry into the complaint if it is satisfied that the following conditions are met:   (a) that the information provided by the compla inant and any other information examined 
by the Tribunal disclose a reasonable indication that 
   (i)  in the case of a complaint filed under subsection 23(1), the goods that are the 
subject of the complaint are being im ported in such increased quantities and 
under such conditions as to cause or th reaten serious injury to domestic 
producers of like or directly competitive goods, . . . 
  (b)  that the complaint is made by or on behalf of domestic producers who produce a 
major proportion of domestic production of  the like or directly competitive goods; 
and . . . 
 
 (c)  where an enquiry, except an enquiry unde r sections 30.21 to 30.25, in relation to like 
or directly competitive goods has been comp leted or terminated by the Tribunal under 
this Act during the twenty-four month peri od preceding the date of receipt of the 
complaint, that the circumstances are suffici ently different to warrant a new enquiry. 
 1. Like or Directly Competitive Goods 
 
15. The Tribunal’s jurisdiction under subsection 26(1) of the CITT Act  is to enquire into 
complaints concerning injury or threat of injury  by imported goods to “domestic producers of like or 
directly competitive goods”. 
 
16. The Board submitted that flue-cured tobacco  produced in Canada and the imported goods are 
identical, as the imported goods fall under tariff classi fications that describe exactly the flue-cured 
tobacco grown in Canada, and are used for identical purposes.  17. The Board also submitted that while, due to its arrangements in Ontario, the methods used to 
market unmanufactured tobacco differ slightly from those used in other countries, all such products 
are marketed essentially through the same channels  of distribution and have the same end uses. 
 18. In the alternative, the Board submitted that dom estically grown flue-cured tobacco is directly 
competitive with the subject goods. It argued that both are purchased by Canadian manufacturers, are 
used exclusively for the production of cigarettes and, therefore, have similar characteristics. 
 19. Based on the foregoing submissions, the Tri bunal finds that the goods of the domestic 
growers are like or directly competitive goods in relation to the subject imports. 
 
2. Reasonable Indication of Increased Imports 
 
20. Data obtained by the Tribunal from Statistics Canada, and aggregated on a fiscal year from 
1 June to 31 May in order to coincide with the fiscal period of domestic growers, show that the 
subject imports increased from approximately 10.7 million green weight pounds for the fiscal year 
ending in 2001 to over 22.0 million green weight pounds for the fiscal year ending in 2005.  Based on 
Statistics Canada data, the value of the subject impor ts increased from $14.7 million for the fiscal year 
ending in 2001 to $28.6 million fo r the fiscal year ending in 2005. 
  G/SG/N/6/CAN/3 
 Page 5 
 
 
 21. A significant increase in the subject imports was apparent for the fiscal year ending in 2005.  
In particular, the imports went from 14.3 million gr een weight pounds for the fiscal year ending in 
2004 to 22.0 million green weight pounds for the fiscal  year ending in 2005.  This represents a 54 per 
cent increase in the volume of subject imports  for the fiscal year ending in 2005 over 2004. 
 
22. In the Tribunal’s view, the increase in impor ts was recent, sudden, sharp and significant and 
also appears to be ongoing.   
3. Reasonable Indication of Serious Injury or Threat of Serious Injury 
 
23. The Tribunal reviewed data contained in the complaint concerning domestic production of 
like or directly competitive goods, including declin es in the number of growers and in the acreage 
planted, loss of market share, loss of sales volume, declining revenues, price suppression and price erosion.  
24. Between 2001 and 2005, while the subject im ports increased, domestic production declined 
from 112.8 million green weight pounds for the fiscal year ending in 2001 to 90.4 million green weight pounds for the fiscal year ending in 2005.  In addition, the acreage planted declined from 
52,050 acres for the fiscal year ending in 2001 to  36,603 acres for the fiscal year ending in 2005.  
 25. Data submitted with the complaint demonstrat e that the number of domestic growers declined 
from 999 for the fiscal year ending in 2001 to 752 for the fiscal year ending in 2005.  
 26. Data in the complaint and those obtained by the Tribunal from Statistics Canada (compiled on 
a fiscal year basis) indicate that the domestic grow ers’ market share declined from 87 per cent for the 
fiscal year ending in 2001 to 70 per cent for the fisca l year ending in 2005.  From fiscal year 2004 to 
fiscal year 2005 alone, there was a significant decrea se in the domestic growers’ market share, from 
80 per cent to 70 per cent.  27. The average unit price of the subject imports was $1.38 per green weight pound for the fiscal year ending in 2001, rising in the fiscal year e nding in 2002 to $1.78 per green weight pound, before 
ending at $1.30 per green weight pound for the fiscal year ending in 2005.  The complaint alleges that 
the consistently low unit price of the subject  imports has prevented domestic growers from 
implementing significant price increases in order to offset their increasing costs of production.  The 
Tribunal accepts, at face value, the Board’s allegatio n that there were increases in the Board member 
growers’ cost of production.  Further evidence in the complaint shows that the net domestic 
guaranteed unit price per green weight pound for dom estic sales increased slightly from $2.69 for the 
fiscal year ending in 2001 to $2.82 for the fiscal y ear ending in 2004.  Since 2004, the unit price has 
been steadily declining.  The net domestic guarant eed unit price for the fiscal year ending in 2005 was 
$2.75 and has now been reduced to $2.74 for the fiscal  year ending in 2006.  As such, the evidence 
shows that domestic prices were  suppressed from 2001 to 2005. 
 28. The evidence in the complain t also shows that the domestic industry has suffered reduced 
gross revenues.  Between 2001 and 2005, Board me mber growers experienced declines in revenues 
from $237 million for the fiscal year ending in 2001 to $187 million for the fiscal year ending in 2005.  29. As indicated above, the information available to the Tribunal demonstrates that there was a 
significant increase in the subject imports from 2001 to 2005.  The evidence also shows decreased 
domestic production and market share, reduced revenues, and price suppression during the same 
period.  G/SG/N/6/CAN/3 
Page 6  
 
 30. The evidence indicates that the increase in impor ts from the fiscal year ending in 2001 to the 
fiscal year ending in 2005 had an adverse imp act on domestic production during the same period.  
Given that the subject imports increased more sharply in the first nine calendar months of 2005 in comparison with the same period in 2004, and gi ven that domestic production for domestic sales is 
expected to remain constant for the current crop ye ar, it is reasonable to conclude that this recent 
increase has an impact on domestic production no less adverse than the increase from the fiscal year 
ending in 2001 to the fiscal year ending in 2005.  31. Accordingly, the Tribunal is satisfied that there is a reasonable indication that the subject 
goods are being imported in such increased quantities and under such conditions as to cause or 
threaten to cause serious injury to domestic producers of like or directly competitive goods. 
 
4. Standing 
 
32. Pursuant to paragraph 26(1)(b) of the CITT Act , the Tribunal must be satisfied that the 
growers represented by the Board account for a ma jor proportion of domestic production of the like or 
directly competitive goods.  Information in the co mplaint indicates that the volume of flue-cured 
tobacco production accounted for by the Board memb er growers that supported the complaint is well 
over 50 per cent.  33. On the basis of this information, the Tribunal is  satisfied that the complaint is made by or on 
behalf of growers that account for a major propor tion of domestic production of the like or directly 
competitive goods.  
5. No Recent Similar Cases 
 
34. Finally, according to pa ragraph 26(1)(c) of the CITT Act , if the Tribunal has completed or 
terminated an enquiry in relation to the like or directly competitive goods during the 24-month period 
preceding the date of receipt of the complaint, it has to be satisfied that the circumstances are 
sufficiently different to warrant a new enquiry.  The Tribunal has never c onducted a global safeguard 
enquiry relating to flue-cured tobacco.  
F. CONCLUSION 
35. Based on the foregoing, pursuant to subsection 26(1) of the CITT Act , the Tribunal has 
decided to commence a global safeguard enquiry  into the complaint on flue-cured tobacco. 
 
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