Canada: U.S. Tariffs On Steel And Aluminum – National Security Ties Justify A Permanent Canadian Exemption

In this international trade brief, we discuss the apparent trade policy reasons for the U.S. administration imposing the aluminum and steel tariffs  (namely, lack of progress in NAFTA renegotiations), which undercut any legal justification for the tariffs based on national security. We also discuss the failure of the tariffs to accord with the WTO rules.

On June 1, 2018, Canada's temporary exemption from tariffs on steel and aluminum applied against several countries, based on national security grounds, by the United States expired. The tariffs — 10% on aluminum and 25% on steel — followed the Department of Commerce investigation on U.S. national security grounds for restricting imports of steel mill products as well as wrought and unwrought aluminum. In the view of the Department of Commerce, the level of importation of these products was weakening the internal economy of the U.S. and threatening to impair national security.

Canada's exemption, along with Mexico's, was explicitly tied by the U.S. administration to progress achieved in the renegotiations of the North American Free Trade Agreement (NAFTA). The initial exemption was set to expire on May 1, 2018, but was further extended at that time on the basis of progress in the NAFTA renegotiations and the achievement of an agreement in principle. The likelihood of a renegotiated NAFTA being completed in 2018 has since dimmed, and it would appear that the U.S. administration is ratcheting up pressure on the U.S.'s NAFTA partners in the renegotiations process. The tariffs are expected to have a significant impact on Canadian steel and aluminum producers. Canada is the largest exporter of aluminum to the U.S., with over $9.3 billion in exports last year. It also exported $5.5 billion worth of steel to the U.S. in 2017, making up about 15% of U.S. imports.

Aside from the economic and political reasons, there are indisputable grounds that  Canada should continue to be exempt from these global tariffs based on the strong strategic alliances between the two countries in the area of national security. As noted recently by Canadian Prime Minister Justin Trudeau, the two countries have a century old military alliance, having fought together in the trenches and beaches of Europe in the two world wars, and more recently as allies in Afghanistan, working together to combat against terrorist organizations. This alliance has been institutionalized by various shared defence committees and organizations responsible for the defence of the continent.

Furthermore, it is highly suspect that the rules that govern international trade set out in the World Trade Organization (WTO) agreements, which permit member states to impose tariffs on a temporary basis to protect "essential security interests," have been satisfied here by the U.S.1 To the contrary, it is clear that these tariffs against Canada were put in place to further President Trump's trade agenda in relation to the NAFTA renegotiations.

The imposition of tariffs to protect national security

The Department of Commerce investigations were carried out under Section 232 of the Trade Expansion Act of 1962, as amended (Section 232). As discussed in greater detail in our international trade brief released when the investigations were first ordered by President Trump, this rarely used provision allows the Commerce Secretary to conduct investigations to determine the effect on the national security of the U.S. of imports of any article. The term "national security" has been interpreted broadly by the Department of Commerce, so as to include "the general security and welfare of certain industries, beyond those necessary to satisfy national defense requirements that are critical to the minimum operations of the economy and government."2 The provision also does not require that national security be impacted by the imports for action to be taken. Instead, it only requires that the imports "threaten to impair" national security.3

The U.S. is permitted by international and World Trade Organization (WTO) laws to impose or increase tariffs for national security purposes. Specifically, Article XXI(b) of the General Agreement on Tariffs and Trade (GATT) and Article XIVbis(b) of the General Agreement on Trade in Services (GATS) provide broad exceptions to allow any member state to subjectively determine the restrictions "it considers necessary" for protecting "essential security interests." The U.S. has previously asserted that the WTO completely lacks any jurisdiction to question the determination by a country of its security interests.4

However, there are restrictions and limits to the ability of nations to employ these national security-based tariffs, and it could be argued that the Department of Commerce's interpretation of Section 232 goes much further than these restrictions allow. Specifically, there is an expectation that Article XXI will only be used to protect "real security interests,"5 and not used to indirectly roll-back commitments made to the WTO. The drafters of Article XXI anticipated that it could be abused, stating that:

We recognized that there was a great danger of having too wide an exception and we could not put it into the Charter, simply by saying: 'by any Member of measures relating to a Member's security interests,' because that would permit anything under the sun. Therefore we thought it well to draft provisions which would take care of real security interests and, at the same time, so far as we could, to limit the exception so as to prevent the adoption of protection for maintaining industries under every conceivable circumstance [...] we cannot make it so broad that, under the guise of security, countries will put on measures which really have a commercial purpose [our emphasis].6

There is limited jurisprudence that would help determine what factors are to be used to delineate actions taken for national security purposes as opposed to those taken "under the guise of security" to protect a country's domestic industry. However, President Trump has been quite explicit that these recent trade-related actions, especially with regards to Canada, have been taken based on what he perceives as slow progress on the NAFTA renegotiations, and that the tariffs will be removed once a "new & fair NAFTA agreement is signed."7 There is no indication that a renegotiated NAFTA agreement will eliminate the perceived threat to U.S. national security posed by Canadian steel and aluminum imports. It appears, therefore, that the tariffs against Canada have been undertaken to further the U.S.' trade policy agenda, as opposed to its national security interests as has been purported. This argument against the tariff measures being legally justified, is amply supported  by the deep national security ties between Canada and the U.S., described below.  

National security ties as a basis for Canada's exemption

Canada has a unique relationship with the U.S. with regards to national security; one that has produced an exceptionally collaborative and co-ordinated defence strategy. This unique relationship furthers the argument that the steel and aluminum tariffs put in place against Canada to protect the U.S.' national security interests would not be permitted under the WTO agreements.

The U.S. and Canada have a long history of military co-operation. The North American Aerospace Defense Command (NORAD) is probably the greatest, and most institutionalized, example of this. Since 1958, responsibility for continental defence has been the responsibility of the bi-national command, which is tasked with aerospace warning and control, and maritime warning, for Alaska, Canada and the continental U.S. This agreement was renewed in 2006,8 and NORAD continues to report to both the U.S. and Canadian governments. 9 This is a unique arrangement in the realm of domestic security, a uniqueness acknowledged by both Prime Minister Trudeau and the Vice Chairman of the Joint Chiefs of Staff  on  NORAD's 60th anniversary last month.10

In addition to working closely on missions, co-operation is also strengthened through the Tri-Command Framework between the U.S., Canada and NORAD. Several classified defence plans suggest that the combined protection of Canada and the U.S. is a priority.11 At any time, there are more than 700 members of the Canadian Armed Forces serving in the U.S., and more than 100 members of the U.S. armed forces participating in exchange positions in Canada.12

The existence of integrated national security institutions such as NORAD, combined with present and historical co-operation, serve to further the argument that trade with Canada cannot be considered a threat to U.S. national security.

Conclusion

Though Canada has proposed strong retaliatory measures against the U.S. steel and aluminum tariffs, it seems likely that Canada will continue to appeal for a permanent exemption from the application of these Section 232 tariffs, and the close ties between Canadian and American national security interests may support this argument. The member states of the WTO do seem to be given quite a wide berth to take action to protect their security interests through trade-related measures, but there are limits placed on what member states can do. Through institutions such as NORAD, it is clear that Canadian and U.S. national security interests are deeply connected, which may undercut the reasoning behind the application of these tariffs to Canadian imports. It is doubtful that a global tariff which does not exclude Canada is truly "necessary" for the protection of the U.S. security interests.

Footnotes

1 General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187, Article XXI.

2 Department of Commerce, Bureau of Export Administration, "The Effect of Imports of Iron Ore and Semi-Finished Steel on the National Security" (October 2001).

3 9 U.S.C. § 1862(b)(3)(A)

4 WTO Analytical Index of the GATT, "Article XXI: Security Exceptions," p. 603 ("WTO Analytical Index"). 

5 WTO Analytical Index, "Article XXI: Security Exceptions," p.600.

6 WTO Analytical Index, "Article XXI: Security Exceptions," p.600.

7 Eric Martin and Andrew Mayeda, "Trump tweets no steel break for Canada without 'new & fair' NAFTA deal," The Financial Post  (March 5, 2018).

8 U.S. Department of State, "Agreement Between The Government of the United States of America and the Government of Canada on the North American Aerospace Defense Command," April 28, 2006.

9 Homeland Security Digital Library, "Terms of Reference: North American Aerospace Defend Command (NORAD)," August 24, 2016.  

10 See U.S. Department of Defence, "NORAD: 60 Years of Keeping North America Safe, Vice Chairman Says" (May 12, 2018), and Justin Trudeau, Prime Minister of Canada, "Statement by the Prime Minister on the 60th anniversary of NORAD"  (May 12, 2018).

11 Framework for Enhanced Military Cooperation Among North American Aerospace Defense Command, United States Northern Command and Canada Command, September 2009.

12 National Defence and Canadian Armed Force, "The Canada-U.S. Defence Relationship" (December 4, 2014).

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