US embassy cable - 05OTTAWA1021

UNCLAS OTTAWA 001021 
 
SIPDIS 
 
4320/ITA/MAC/WH/ONIA/ for GWORD 
 
E.O. 12958: N/A 
TAGS: ETRD, CA, CITT Canadian International Trade Tribunal, 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.