Gajan Sathananthan, Riyaz Dattu
Aug 11, 2020
In this International Trade Brief, we discuss the Canadian government’s consultation process on a proposed list of countermeasures to the 10% tariff on Canadian aluminum exports announced by the United States on August 6, 2020.
In response to the 10% tariff on Canadian aluminum exports announced on August 6, 2020 by U.S. President Donald Trump, the Canadian government has issued a proposed list of countermeasures in the form of a 10% surtax on certain imports into Canada originating from the United States.
The U.S. tariffs are to be imposed on August 16, 2020, and the Canadian surtaxes one month later on September 16, 2020, in the total aggregate amount of $3.6 billion to match the impact of the U.S. tariffs on Canadian aluminum.
If this all sounds familiar, it is. Similar measures and countermeasures were taken by both governments in 2018 with regards to steel and aluminum. The U.S. tariffs were imposed by President Trump pursuant to section 232 of the Trade Expansion Act of 1962, which allows for the taking of such measures in exceptional circumstances on national security grounds. Until 2018, the reliance on section 232 to impose U.S. tariffs had been rare and relegated to the distant past. Lengthy bilateral negotiations, lasting nearly a year, were required to bring a resolution to those measures. These negotiations led to a Joint Statement being issued in May 2019 which, while eliminating the tariffs and surtaxes, also prescribed the limited circumstances in which such measures could be reinstated, and imposed restrictions on the types of countermeasures that could be invoked.
Two years later, President Trump’s administration has claimed that Canadian imports of certain aluminum goods have surged beyond historical levels which, pursuant to the Joint Statement, can lead to the imposition of duties if consultations fail to address the issue. It appears that the consultations did not address U.S. concerns, leading the President to announce the new tariffs on Canadian aluminum exports.
The proposed Canadian countermeasures target a broad range of unmanufactured and manufactured products of the U.S. aluminum industry (as is required by the Joint Statement). This includes, in addition to industrial products, many household consumer products, sports goods, metal furniture and pre-fabricated homes.
The Canadian government has allowed businesses until September 6, 2020, to provide comments on its proposed countermeasures, after which it will finalize the list for the imposition of surtaxes by September 16, 2020.
The information provided in the submissions should, at a minimum, consist of:
1. Information concerning the entity making the request.
2. Accurate information concerning the relevant eight-digit tariff code and detailed description of the relevant goods.
3. Submissions setting out support for, or concern with, the proposed countermeasures, including detailed information substantiating any expected beneficial or adverse impact.
4. Indication within the submission of information that is commercially sensitive over which the business is seeking confidentiality.
Businesses that may be impacted, whether positively or negatively, by the proposed countermeasures should consider making submissions to the Canadian government.
In our experience, one of the most critical issues in anticipating the impact of these countermeasures, whether beneficial or not, is reviewing and confirming the applicable tariff codes or classifications of products potentially affected. That is, it is crucial to accurately determine if the products of the business are covered or not by the list of countermeasures. We have found that due to duty-free treatment accorded to exports within the North American region, on the basis of the North American Free Trade Agreement (NAFTA) and as of July 1, 2020, under the Canada-United States-Mexico Free Trade Agreement (CUSMA), there has been insufficient attention paid by businesses to the correctness of the tariff classification being used.
Incorrect classification of the goods may lead to unexpected tariffs if in fact the products of the company that are being imported from the U.S. are within the final list of countermeasures. We saw that happen in 2018 in several situations, where companies found themselves unexpectedly paying tariffs.
From our experience in the 2018 round of measures and countermeasures, we have also learned that starting the submission process well in advance of the deadline is critical, as the most successful submissions were ones that were focused and provided cogent reasons to substantiate the position being advanced, grounded in tariff policy and economic analysis, including setting out the adverse impact or benefits of the surtaxes on their business.