Canada: Canada's Trade Relationship With The USA Today: The Upside Down (Video)

Last Updated: September 27 2018
Article by Richard G. Dearden

On Sept. 7, Gowling WLG and the City of Hamilton hosted a public summit at Hamilton's City Hall exploring the key challenges facing Hamilton's steel industry - with an emphasis on current obstacles posed by new U.S. tariffs.

Framing the summit's overarching discussion was a keynote address from accomplished international trade lawyer and Gowling WLG partner Richard Dearden, titled "Canada's Trade Relationship with the United States of America Today." His presentation provided important context on the tumultuous U.S.-Canada trade climate under President Donald Trump, and also highlighted a number of potential measures by which to protect Canadian steel producers from U.S. tariffs.

A video recording of the summit and Dearden's presentation are provided below.


Richard Dearden, Gowling WLG: Good morning everybody. Maryors, thanks for inviting me here today to speak about Canada's trade relationship with the United States today. Outline of the points that I'm going to address during this presentation are first, the current trade climate with the USA and the implications of that trade climate. Secondly, the USA's 25% so called National Security Tariffs on Canadian steel imports and Canada's response to those tariffs. Third, a very big future risk, which is the threatened 25% so called National Security Tariffs on automobiles and auto parts and then I'll conclude about some next steps in this relationship.

The current trade climate. This is, of course, not working. Always does that with PowerPoint's, right? Current trade climate. In one word, it's stormy. I came up with the best analogy that I could think of to depict our trade relationship with the US day to day and I'm going to use the Netflix program, Stranger Things, to do that. Those of you that don't know, you haven't watch Stranger Things, and I highly recommend that you do, there is an upside down place in Stranger Things. The upside down is a parallel universe that is habited by a monster. Now being as there are media in the room, I want to be perfectly clear, I am not referring to President Trump as the monster in this analogy, although some of his trade policies are a tad monstrous but it's not him. Okay? It's in the program only. An alternative dimension, the upside down, is a place that's comparable to the real world. Comparable to the real world but somehow off. So is Canada's trade relationship with the US in the upside down today? Well, the next few slides provide my answer and it should give you a flavour of the stormy relationship that we're in today. We're living in the "Make America Great Again" world of President Donald Trump. Here's a couple of his recent tweets that demonstrate President Trump's view of trade deals. 

"Our country was built on tariffs and tariffs are now leading us to great new trade deals as opposed to the horrible and unfair trade deals that I inherited as your President. Other countries should not be allowed to come in and steal the wealth of our great USA. No longer."

On September 1st the President tweeted, "There's no political necessity to keep Canada in the deal." and he threatens to terminate NAFTA entirely and says, "We will be far better off. And remember, NAFTA was one of the worse trade deals ever made." So that's what he thinks of NAFTA. What's he think of the World Trade Organization?

Well, the Director General minced no words a couple of months ago to say that global trade is under threat and he said reciprocal trade restrictions cannot be the new normal. Now contrast those warnings with President Trump saying to Bloomberg last week, "If they don't shape up I could withdraw from the WTO which treats the USA very badly." 

Now, Canada as an exporting nation, we need the World Trade Organization. We need it to resolve disputes with an economy that's so much larger than ours like the United States. The most recent World Trade Organization dispute does involve the 25% National Security Tariffs on our steel. The rules based trading system is under threat by President Trump's administration. He doesn't care if he doesn't play by the trade rules. Last night, I don't know if you saw the news this morning, but last night at a rally in Montana he was speaking about, "Well, we might renegotiate a NAFTA with Canada. It's possible. But quote I don't care." Okay? He doesn't want trade rules constraining his ability to Make America Great Again. He doesn't like free trade agreements. That's why the one that he says he has with Mexico is called a trade agreement, not a free trade agreement. His trade policy is erratic. It's irrational. It's no holds barred. It's unpredictable and, in my opinion, President Trump will do whatever he believes will Make America Great Again and the most impactful to this group would, of course be, those National Security Tariffs on steel. He imposed those on June 1st against our steel and aluminum and he's linked it to the NAFTA renegotiations. He calls our Prime Minster dishonest and weak and he says those 25% tariffs on steel, and 10% on aluminum, are a response to our 270% dairy tariffs which he wants eliminated in the current NAFTA negotiations. It is an abuse of national security power to impose 25% tariffs on steel as a bargaining chip for the NAFTA renegotiations. Canadian steel is not a threat to national security of the United States of America. 

So what's Canada's response been? Well, it's various ways. Retaliation. There's two surtax orders that have been issued that are to be imposing about 6.6 billon on imports of steel, aluminum and other products originating from the US; (a) there's new anti-circumvention and diversion measures. The Minister of Finance initiated consultations on possible safeguard actions and then there was some financial aid that was announced. Those surtax orders will remain in place until the US eliminates its 25% tariffs on steel and 10% on aluminum. The Government of Canada has assessed the impact of those so called National Security Tariffs on Canadian steel and aluminum producers as currently incurring significant costs and suffering serious economic harm. The CDAL Institute is estimated, there could be a loss of 7.3 billion dollars in exports, and possibly 6 thousand jobs lost. There is remission available in very limited circumstances from those surtaxes. 

Here are the anti-circumvention and diversion measures that have been implemented but because I'm under the clock I'm not going to review that. I won't get into the weeds, if you will, and go legal on you by going through that slide. Let's get to the big risk of the future and that is President Trump threatening to impose 25% tariffs on Canadian automobiles and auto parts. And he's done it on many occasions and he's linked it to the NAFTA renegotiations. 

In August, early August, he says we'll tax cars if we can't make a deal. At a rally in Indiana, at the end of August, he said if Canada doesn't give him the deal that he wants, "if that doesn't happen we'll put tariffs on the cars coming in from Canada and that will be even better." In an interview with Bloomberg he says, it was supposed to be off the record, I'm sure you've all heard about that. Toronto Star broke the story. "Canada's working their ass off and every time we have a problem with a point I just put up a picture of a Chevy Impala." Once again, Ladies and Gentlemen, I say it is an abuse of the national security power to impose tariffs like that as a bargaining chip in the NAFTA renegotiations. Now there is an investigation going on right now with the Department of Commerce to determine whether they should recommend to the President that there should be tariffs imposed on automobiles because they're under national security threat. Our Ambassador, David MacNaughton, our Ambassador to the United States, tweeted that the impact of that on US consumers, 4,400 dollars extra a car. Now we have the US - Mexico Trade Agreement. Note no word free in there. Mexico's Economy Secretary has been quoted as saying, "That Mexico and the US agreed to a side agreement, a side letter, that is going to protect Mexico's automobile exports to the United States if the 25% national security tariffs are imposed." If they abide by the new rules of origin that were negotiated, which is supposed to be 75% of the content of the car must originate from North America, and it varies what you hear because the text isn't available yet, from 40 to 45% of the content of the car has to come from a factory where the worker makes US 16.00 dollars an hour. How you calculate all those percentages, the devil's going to be in the detail, and we don't have those details as I stand here today. They've negotiated in a side letter, Mexico has something like 40% above the current level of exports of automobiles that they have. So they have a lot of wiggle room if those national security tariffs come on automobiles. Now, Mexico also is reported to have agreed to quotas on steel in exchange for getting rid of those 25% tariffs on steel and yesterday the Economy Minister was quoted as saying that, "Mexico's not going to ratify this Mexico - US Trade Agreement unless those tariffs are eliminated. I'm sure our negotiators are working hard to make sure that there's some solution to the 25% tariffs on our steel as soon as possible." 

What are next steps? I predict that the Canadian steel industry are going to remain frequent flyers at the Canadian International Trade Tribunal in terms of filing a lot more complaints to protect themselves from dumped imports of steel or subsidized imports of steel. 

Safeguard actions. This is interesting. Finance Minister announced consultations which ended on August 29th as to whether Canada should impose safeguards. So those are non-dumped, non-subsidized goods, but impose safeguards on these 7 steel products like concrete reinforcing bar. He has to decide if there's enough increased quantities and serious injury to Canadian producers and whether there's critical circumstances that exist that he could recommend to cabinet to do that now. He can also ask the Canadian International Trade Tribunal to have an inquiry on whether they recommend that safeguard measures be implemented. They can be surtaxes, quotas or surtaxes and quotas. It's not going to be an easy decision because there is opposition to having safeguards imposed on imported steel. Notably, users from the construction industry do not want safeguards imposed. That's a big political decision for the Minister to make. 

Procurement. I recommend that municipal, provincial and federal governments should play by the Make America Great Again rules, let's buy Canadian. I know there's procurement rules that have to be navigated. This isn't a plug for lawyers but you know we can argue anything with a straight face. So let's navigate those procurement rules and let's start thinking about buying Canadian steel. Ontario had an interesting act that they passed, which you see on this slide, which basically is if you cut us out of procurement opportunities, we're cutting you out of procurement opportunities. I think every Province should do the same. 

I've been asked to, before I get to my conclusion, status of NAFTA renegotiations. Well, good news, there still negotiating. Bad news, nothing's going to happen today. Okay? I'm optimistic that the United States and Canada will resolve the issues that are holding things up like Chapter 19 of the Anti-dumping and Countervail Dispute Resolution chapter. I'm optimistic we're going to do that. Kudos, by the way, to our Foreign Affairs Minister, Chrystia Freeland, Chief Negotiator, Steve Verheul, our Ambassador, David MacNaughton and their teams. You have to remember, you know, there is somebody on the other side of the table and they have formidable people on the other side of the table. United States Trade Representative, Lighthizer, he's the real deal. He knows what he's doing so that's what they're up against. So remember, whatever comes out of it, because I'm optimistic something's going to come out of it, they aren't miracle workers. Okay? But they're doing a very, very good job for us. So, if my optimism comes true and there is those issues resolved between Canada and the US, then all three countries have to get together and come up with the final text. That I can tell you, from experience, is not an easy thing to do and they're under a time clock, but it can be done. 

In conclusion, Ladies and Gentlemen, let me give you a few quotes here. 

President John F. Kennedy said this about Canada - US relationship. "Geography's made us neighbours. History has made has friends. Economics has made us partners and necessity has made us allies." 

President Obama. "Woven together so deeply as societies, as economies, that it's sometime easy to forget how truly remarkable our relationship is."

President Trump, he tweets out that our Prime Minister is a liar. 

Our relationship with the United States has radically changed under the President Trump administration. It is all about America first and the gloves are off. Okay? Buckle up. The American alone approach means we're going to see more protectionist measures coming out of the United States and it's going to be there for a while. So the new normal is the abnormal, and as I started this presentation, we are indeed in the upside down. 

Thank you very much. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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