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.
Scope of 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:
- Raw and processed primary aluminum products such as ore, plates, sheet and strip, bars, rods and wire, tubes and pipes, aluminum chemical compounds, and scrap aluminum.
- Aluminum building products such as doors, windows and frames, fasteners, structures and parts of structures.
- Prefabricated buildings of metal.
- Pigments used in paint manufacturing.
- Aluminum food and beverage cans, aerosol sprayers, casks, drums, tanks, compressed gas canisters and other containers.
- Household refrigerators, and household or commercial washing machines.
- Aluminum electrolytic fixed capacitators.
- Kitchen products such as aluminum foil, scouring pads and sanitary ware.
- Bicycles and bicycle parts, and parts of motorcycles, mopeds electric bicycles and mobility scooters.
- Livestock trailers.
- Metal furniture.
- Aluminum monopods, bipods, and tripods.
- Golf clubs and other sports articles (baseball bats, hockey sticks, playground equipment).
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:
- Paint dyes and aluminum waste, of which Michigan is a top exporter to Canada;
- Refrigerators and bicycles, of which Wisconsin is the lead exporter; and
- Aluminum powders and bars from Pennsylvania.
2018 Tariffs Redux
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.
Availability of 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.
What Can Businesses Do to Protect Themselves?
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:
- Determine whether the imported goods are included in the proposed countermeasures list by reviewing the HS classifications and description of their imported goods, and verify whether they are of "U.S. origin".
- Interested parties, including U.S. exporters, should consider making submissions to the Government of Canada regarding the list of countermeasure-targeted products. To repeat, the deadline for filing these submissions are on September 6, 2020.
- Assuming the United States proceeds with its plan to impose s. 232 tariffs on Canadian aluminum, affected goods that enter Canada on or after September 16, 2020, will be subject to Canadian countermeasures regardless of the date the goods were purchased or ordered, although goods in transit on the effective date will be exempt. Importers should determine whether existing orders are at risk and consider strategic alternatives, such as accelerating shipments, delaying acquisitions, engaging a non-U.S. supplier, or renegotiating pricing terms if possible. It is also advisable to assess opportunities for supply chain diversification.
Additional risk mitigation strategies are discussed in our previous blog published during the 2018-2019 countermeasures.
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.