Canada: Canada Positioned To Impose C$1-Billion In Retaliatory Surtaxes On Imports

Under international trade rules, as of December 7, 2015, Canada has the right to impose just over C$1-billion per year in surtaxes on goods imported from the U.S. This is due to a decision by a World Trade Organization (WTO) arbitrator who ruled that Canada may impose additional border taxes on any goods of its choosing in retaliation for the failure of the U.S. to repeal and/or bring into compliance certain Country of Origin Labelling (COOL) laws found to be contrary to WTO rules. In the same decision, Mexico was granted the right to impose surtaxes of up to US$228-million per year on U.S. goods.

NEXT STEPS: CANADIAN IMPORTS COULD BE HIT WITH 100 PER CENT SURTAXES

Now that the arbitrator's decision has been issued, the final step is for Canada and Mexico to receive final authorization from the WTO's Dispute Settlement Body (DSB) to impose the retaliatory measures in the amounts determined by the arbitrator. In June of 2013 Canada published a list of products on which it intends to impose retaliatory surtaxes should the U.S. fail to repeal the COOL measures. Importers of the following general categories of goods, among others, are potentially at risk of paying 100 per cent surtaxes or finding alternate sources of supply:

  • Meats
  • Cheese
  • Fruits (i.e. apples, cherries)
  • Corn
  • Rice
  • Glucose and fructose
  • Chocolate
  • Pasta
  • Prepared foods
  • Breads and baked goods
  • Potatoes
  • Orange juice
  • Tomato ketchup
  • Wine
  • Sugars
  • Jewellery
  • Stainless steel tubes, pipe and hollow profiles
  • Stove and range parts
  • Grinding balls
  • Swivel seats
  • Wooden furniture
  • Mattresses

In a press release issued on the same day as the arbitrator's decision, Canada's new Minister of International Trade, Chrystia Freeland, and Minister of Agriculture and Agri-Food, Lawrence MacAulay, reinforced Canada's intention to impose retaliatory measures, stating that Canada would "quickly take steps to retaliate" should the U.S. Senate not take immediate action to repeal the COOL measure. However, given the new federal government's commitment to deepen Canada-U.S. relations, it is still possible that Canada may choose not to move forward with retaliatory measures, despite the fact that the U.S. has exhausted its ability to block or delay such measures at the WTO. Even if the federal government decides to proceed, it will still need to finalize the list of goods that it will target, and it is very likely that the final list will be a much truncated version of the 2013 list given the arbitrator's decision.

A DISPUTE YEARS IN THE MAKING

The COOL dispute dates back to December 1, 2008, when Canada first requested consultations with the United States at the WTO regarding COOL provisions in the Agricultural Marketing Act of 1946, as amended by the Food, Conservation and Energy Act of 2008 (known as the 2008 Farm Bill), and as implemented through an interim final rule of July 28, 2008. The impugned provisions included an obligation to inform consumers at the retail level of the country of origin in respect of covered commodities, which included beef and pork. Canada alleged that the COOL provisions were in contravention of a number of U.S. WTO obligations under the 1994 General Agreement on Tariffs and Trade, the Technical Barriers to Trade Agreement, and the Sanitary and Phytosanitary Measures Agreement.

The DSB established a panel to hear the dispute in November of 2009, and concluded in its 2011 report that the COOL measure did accord less favourable treatment to imported Canadian cattle and hogs than to similar domestic products in a manner inconsistent with commitments the U.S. had made to the WTO. Both Canada and the U.S. appealed the panel's report to the WTO's Appellate Body (AB), which issued its report in June of 2012, and also found the COOL measure to be non-compliant vis-à-vis the WTO agreements.

In the face of the DSB panel and AB reports, on May 23, 2013, the U.S. Department of Agriculture issued a final rule that made changes to the COOL labelling requirements. Unfortunately, the new rule called for greater specification in the required labelling, such that producers would need to indicate in which country the animal was born, raised and slaughtered. Canada took the position that the new rule was more restrictive than the original, and on August 19, 2013, requested the establishment of a compliance panel, tasked with determining whether the U.S. had complied with the DSB's recommendation to bring the COOL measure into WTO compliance.

The compliance panel's report was issued on September 27, 2013, finding that the U.S. had failed to properly revise the COOL measure, a conclusion shared by the AB when it issued its report on May 18, 2015, in response to the U.S. appeal of the panel's report. Several weeks after the AB's decision, Canada announced on June 4, 2015, that it had filed a request for authorization with the DSB to impose over C$3-billion in retaliatory measures against U.S. exports to Canada. It was this figure to which the U.S. objected, asking for an arbitrator to set the proper level of retaliatory measures.

As part of a final push to resist the imposition of retaliatory tariffs by Canada and Mexico, on June 22, 2015, the United States exercised its right under the WTO Dispute Settlement Understanding to have an arbitrator determine the value of retaliatory measures Canada and Mexico could take against the U.S. The decision issued on December 7, 2015, marks the end of this WTO dispute, leaving Canada with some clear options to consider in connection with taking retaliatory measures in order to put pressure on the U.S. to withdraw the COOL measures.

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