Canada Lifts Retaliatory Surtaxes on Steel, Aluminum and Other Goods

On May 17, 2019, the Canadian and United States governments released a joint statement on Section 232 duties on steel and aluminum to announce they had reached an agreement to eliminate tariffs and countermeasures imposed on imports of steel and aluminum between the two countries, effective May 19, 2019. This announcement ends one of the countries’ most contentious trade issues in recent years, as well as paving the way toward the ratification of the Canada-United States-Mexico Agreement (CUSMA).

BACKGROUND

As reported in our Blakes Bulletin: Canada Responds to New U.S. Steel Tariffs with Dollar-for-Dollar Measures Against Certain U.S. Imports on May 31, 2018, the United States imposed tariffs on imports of certain steel and aluminum products from Canada at the rates of 25 per cent and 10 per cent, respectively, pursuant to Section 232 of the U.S. Trade Expansion Act of 1962. Canada announced that it would impose retaliatory countermeasures, consisting of dollar-for-dollar surtaxes on imports of certain steel and aluminum products, as well as a range of food and consumer products from the U.S., effective July 1, 2018. Many stakeholders hoped the tariffs and surtaxes would be removed with the signing of CUSMA in November 2018. However, that did not happen, and Canada stated it would not ratify the CUSMA until the tariff issue was resolved.

Canada’s retaliatory surtaxes have represented a significant cost increase to importers of steel, aluminum and many other goods imported into Canada. While the Canadian government granted a remission of the surtax in short-supply situations and where contractual requirements mandated sourcing from the U.S., there was little to no relief granted to the importers of the long list of other food and consumer goods subject to the surtax.

THE JOINT STATEMENT

Pursuant to the joint statement, among other things, the U.S. agreed to eliminate all tariffs they imposed under Section 232 on imports of aluminum and steel products from Canada, and Canada agreed to withdraw the surtaxes imposed in retaliation. The joint statement also ends pending litigation between the two countries at the World Trade Organization regarding the Section 232 action.

Additionally, the parties have agreed to implement “effective measures” to prevent the importation of dumped or unfairly subsidized aluminum and steel and the transshipment of aluminum and steel made outside of Canada or the U.S. to the other country. The U.S. and Canada will also establish a process for monitoring aluminum and steel trade between them. In monitoring for surges, either country may treat products made with steel that is melted and poured in North America separately from the products that are not.

In the event of a meaningful surge (beyond historic volumes of trade over a period of time) of imports of steel or aluminum products, the importing country may request consultations with the exporting country. After such consultations, the importing country may reimpose tariffs (25 per cent for steel and 10 per cent for aluminum) on individual products where the surge took place. If the importing country imposes these tariffs, the exporting country agrees to retaliate only in the affected sector.

COMMENT

The end of the tariffs and countermeasures should come as a relief to affected industries and will hopefully signal the return to a more normalized trade relationship. The Canadian government has also noted that it will move quickly to ratify CUSMA, which will have wide-ranging effects in a number of industries (for more, see our Blakes Bulletin: The Ins and Outs of Canada’s New Trade Agreement and NAFTA Replacement, the USMCA).

The joint statement signals that the U.S. tariffs could be reimposed in certain circumstances, and while Canada will have the right to impose retaliatory surtaxes, it will be limited to retaliation in the same steel or aluminum product subject to the renewed tariffs. This will likely limit the effectiveness of Canada’s retaliatory measures where there is an unequal balance of trade in these products.

Finally, there is the issue of the status of the Surtax Remission Order, which grants a remission of the surtax for short-supply situations and to specified importers. The Remission Order grants remission retroactively to July 1, 2018, and, therefore, should remain in place so that all eligible applicants will have the opportunity to claim remission for the period in which the surtaxes had been in effect.