Trade Roundup: What's New in Steel Safeguards, U.S. Surtaxes and CUSMA

June 12, 2019

Written By Darrel H. Pearson, Jessica B. Horwitz, Margaret M. Kim and Julie Wilson

There have been a number of developments in recent weeks affecting Canada's surtaxes on imports of certain steel, aluminum, and other goods to Canada. This post summarizes the recent changes.

1. Final Steel Safeguards, Exclusions, and Refunds

As discussed in a previous Bennett Jones update, effective May 13, 2019, Canada imposed final safeguard measures on two categories of steel products, heavy plate and stainless steel wire. The safeguards will take the form of tariff-rate quotas (TRQs), and remain in effect through October 24, 2021, on a progressively liberalized basis. There will be no mid-term review because the total duration of the safeguards does not exceed three years.

Refunds of Provisional Surtaxes

The Canada Border Services Agency (CBSA) has also announced that refunds will be issued automatically to importers who paid provisional safeguard surtaxes on imports of steel products for which safeguards were discontinued (without the need to file B2 Adjustment forms). CBSA has not given a firm indication of expected timing for refund processing but the updated Customs Notice 18-17 states that importers may submit refund status inquiries to CBSA Trade Programs after August 1, 2019. In certain cases, the CBSA may require importers to provide supporting documentation.

Exclusions Inquiry

The Canadian International Trade Tribunal (CITT) is now conducting an exclusion inquiry into whether certain products should be excluded from the heavy plate and stainless steel wire safeguards. The CITT will recommend that goods be excluded if it finds that there is no domestic source of supply for goods and there is no firm and commercially viable plan to produce those goods domestically. The CITT will issue its final exclusions report on July 15, 2019.

Tariff Rate Quota Allocation for Final Safeguards

Shipment-specific import permits are required to import heavy plate and stainless steel wire to Canada within quota. The following tables summarize the pro-rated quota available for each applicable period and applicable over-access surtax, as set out in the safeguards Order Schedule, Customs Notice 19-08 and Notice to Importers No. 945:

• Heavy Plate

  Period	Duration	Surtax	TRQ (tonnes)
  1	One-year period beginning on May 13, 2019, and ending after May 12, 2020.	20%	100,000* *Pro-rated by period: May 13 to June 2, 2019: 5,738 June 3, 2019 to Jan 31, 2020: 66,667 Further allocations to be determined thereafter
  2	One-year period beginning on May 13, 2020, and ending after May 12, 2021.	15%	110,000
  3	165-day period beginning on May 13, 2021, and ending after October 24, 2021.	10%	54,699

• Stainless Steel Wire

  Period	Duration	Surtax	TRQ (tonnes)
  1	One-year period beginning on May 13, 2019, and ending after May 12, 2020.	25%	2,800* *Pro-rated by period: May 13 to June 2, 2019: 161 June 3, 2019 to Jan 31, 2020: 1,867 Further allocations to be determined thereafter
  2	One-year period beginning on May 13, 2020, and ending after May 12, 2021.	15%	3,080
  3	165-day period beginning on May 13, 2021, and ending after October 24, 2021.	5%	1,532

The final safeguards do not apply to imports of goods originating in Chile, Colombia, Mexico, Panama, Peru, South Korea, the United States or Israel (or other beneficiaries of the Canada-Israel Free Trade Agreement), or to imports from General Preferential Tariff developing countries, subject to certain conditions.

Canada's Duties Relief Program and Duty Drawback Program continue to be available with respect to the safeguard surtaxes on heavy plate and stainless steel wire for importers who meet the requirements of those programs.

2. Finance Minister Seeks Legislative Flexibility to Re-Impose Discontinued Safeguards

On June 3, 2019, the Minister of Finance tabled legislation, Bill C-101, to temporarily eliminate subsections 55(5) and (6) of the Customs Tariff. These provisions prevent Canada from immediately re-imposing further safeguard measures on products that were recently the subject of provisional safeguard measures.

Bill C-101 suggests that the Canadian government is concerned about the results of the CITT's finding in respect of the five categories of steel products for which safeguards were discontinued, and would like to give itself the ability to re-impose provisional safeguards on these categories and conduct another inquiry within the next 24 months if it finds such a step to be warranted. In House of Commons debate, the government explained the amendment will create "greater flexibility" to "respond quickly and appropriately to situations where a surge of imports harmed or could harm Canadian producers and workers." The government moved for closure on second reading to curtail the amount of time that the legislation is debated in the House of Commons, presumably to try to advance the bill through before the summer recess to prevent it from dying on the order paper. The bill has now passed second reading and been sent to committee.

The proposed amendments, if enacted, would repeal these subsections only temporarily, until June 2021. The temporary nature of the amendments suggests that the Canadian government is mindful of WTO requirements: Article 7 of the WTO Agreement on Safeguards requires a 1-year moratorium on safeguards where a product has been subject to provisional safeguards for less than 180 days, and a 2-year moratorium for a product that was subject to provisional safeguards for more than 180 days.

Canada had been consulting with domestic stakeholders since April 2019 after the steel safeguards were discontinued. At that time, Canada had announced it would impose certain new measures "to protect Canadian jobs and industry from unfair trade practices". Bill C-101 appears to be one such measure. While the action strikes as a measured defensive move in a global climate of trade uncertainty, it also reflects an apparent departure from the rules-based international trading system, the preservation of which Canada has been vocally pursuing at the WTO in recent months. Further discussion on recent WTO developments is available in Section II of the Bennett Jones Spring 2019 Economic Outlook.

3. U.S. Steel and Aluminum Tariffs and Canadian Countermeasures Discontinued

On May 17, 2019, the United States and Canada announced that they had reached an agreement to end the U.S. tariffs on steel and aluminum of 25 percent and 10 percent, respectively, levied under section 232 of the U.S. Trade Expansion Act of 1962 and related Canadian dollar-for-dollar countermeasure surtaxes on U.S. steel, aluminum and other products. The Canadian surtaxes were repealed effective May 19, 2019. Canada and the United States further agreed to end all pending litigation at the WTO on these tariffs.

The joint statement included several additional commitments to monitor future trade of steel and aluminum, for which no details are yet available. The statement therefore leaves residual uncertainty about the future of Canada-U.S. trade in steel and aluminum and raises the spectre of possible resumption of the tariffs.

The joint statement included unspecified commitments to:

• "implement effective measures" to prevent the importation of aluminum and steel that is unfairly subsidized and/or sold at dumped prices and to prevent the transshipment of aluminum and steel made outside Canada or the United States to the other country;
• establish a process for monitoring steel and aluminum trade between the two countries (which may treat products made with steel melted and poured in North America separately); and
• consult in the event that "imports of aluminum or steel products surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share", with a recognition that targeted surtaxes may be re-imposed after consultations, in the event of which the countries agreed to retaliate only in the affected sector (unlike Canada's previous countermeasures that targeted a variety of other categories of goods beyond steel and aluminum.

There has been no discussion of surtax refunds on either side of the border and it is unlikely that any refunds will be issued. These particular tariffs were imposed under domestic legal mechanisms on a "national security" rationale, and are therefore not subject to refund obligations under international law (as are, for example, provisional safeguards).

4. Canada Makes Progress on NAFTA 2.0 Ratification

The Canada-United States-Mexico Agreement (CUSMA, aka USMCA or NAFTA 2.0) is moving forward after the lifting of the U.S. steel and aluminum tariffs, at least on the Canadian side. On May 29, 2019, the Prime Minister introduced Bill C-100, which will implement the necessary statutory amendments for Canada to ratify its new commitments under the agreement. Although Canada is currently in a position to pass the ratifying legislation fairly quickly with the present majority government (a federal election will take place on October 21, 2019), Canadian officials have said the country will move forward with ratification in tandem with the United States and Mexico, where ratification remains uncertain.

If you wish to discuss how these changes may affect your business, please contact Darrel Pearson or any member of the Bennett Jones International Trade and Investment group.

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