On August 6, 2020, the United States announced import tariffs of 10 percent on imports of raw aluminum products from Canada, effective August 16, 2020. The tariffs on unprocessed aluminum from Canada are to be assessed under American national security threat provisions contained in Section 232 of the U.S. Trade Expansion Act of 1962. These tariffs represent a resumption of similar tariffs imposed on Canadian aluminum exports by the U.S. administration from June 1, 2018, to May 17, 2019. The announcement was made just over one month after the entry into force of the Canada-U.S.-Mexico Agreement (CUSMA).
The Government of Canada responded to the U.S. announcement the next day by announcing a "perfectly reciprocal" 10-percent surtax against imports of certain aluminum and aluminum-containing products from the U.S. of roughly equal value to that of affected Canadian exports—$$3.6 billion. The surtax will take effect on September 16, 2020, and will remain in place until the U.S. terminates its application of the s.232 tariffs against Canadian aluminum products. Goods in transit to Canada on the effective date will be exempt.
The federal government is holding a 30-day consultation on the list of potential U.S. aluminum products to be subject to the surtax. The deadline for submissions is September 6, 2020. Canadians and Canadian businesses are encouraged to comment on the proposed list of affected Canadian imports of U.S. goods, and to express support for, or concerns respecting, the proposed countermeasures.
The proposed list of U.S. products is available on the Department of Finance website. The 10-percent surtax will only apply to U.S. goods, with origin determined in accordance with the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations.
The scope of potential target products is broader than raw aluminum, and includes a number of finished and semi-finished goods containing aluminum. Some of the targeted categories include:
Although the Canadian government asserts that the list of goods being targeted by the countermeasures was not designed with U.S. domestic politics in mind, a number of the aluminum products on the preliminary list impact U.S. businesses in key battleground states in the upcoming 2020 Presidential Election, such as:
This is not the first time that the Trump administration has targeted Canadian metals for alleged national security reasons. In June 2018, the U.S. imposed a 10-percent tariff on aluminum, and a 25-percent tariff on steel. In response, Canada imposed countermeasure surtaxes on $16.6 billion worth of American products. Canada and the U.S. reached a negotiated agreement to eliminate the tariffs in May 2019.
One of the terms of compromise in 2019 was that the U.S. reserved the right to re-impose its tariffs in the event that imports of Canadian aluminum or steel "surge meaningfully beyond historic volumes of trade", and Canada agreed to limit its retaliation to only the "affected sector" (i.e., aluminum and aluminum-containing products or steel, as the case may be). In this month's announcement, the Government of Canada indeed specified its intention is to impose surtaxes only on "aluminum and aluminum-containing products" from the U.S., although some of the 8-digit HS codes listed in the proposal are broader than exclusively aluminum goods. As noted below, relief from surtaxes applicable to more-than-target aluminum products in virtue of the breadth of the 8-digit HS codes will be cured by remissions.
After the surtax order is published in September, the Canadian government will initiate a procedure for importers to request remissions of the surtax, as it did in 2018-2019. Details of the remission process have not yet been announced. However, during the 2018-2019 remission process, applications for remission could be based on one or more of three conditions: (i) short supply in the domestic market, (ii) pre-existing contractual obligations, and (iii) exceptional circumstances that could have severe adverse impacts on the Canadian economy. The government may also use the remission process to address issues related to over-breadth of certain HS codes that contain non-aluminum products.
Importers and exporters of Canadian-origin aluminum or the products contained on the prospective Canadian countermeasures list should examine their commercial trade terms and supply chains to assess exposure. Affected businesses should consult with experienced international trade counsel to develop risk-mitigation strategies, including avoidance of future trade disputes.
Canadian importers and exporters should consider the following when preparing for the implementation of Canada's countermeasures:
Additional risk mitigation strategies are discussed in our previous blog published during the 2018-2019 countermeasures.
Please feel free to contact any member of the International Trade and Investment team at Bennett Jones to discuss any specific questions arising from the U.S. tariffs or Canadian countermeasures.