Surtax Ceasefire – Canada and the US Agree to End Steel Tariffs
Late last week, the US finally agreed to lift all tariffs it had previously imposed, under section 232 of the Trade Expansion Act 1962, on steel and aluminum imports from Canada. The US tariffs, purportedly imposed for national security reasons, had been a major obstacle to Mexico's and Canada's ratification of the CUSMA modernization of NAFTA. Canada, accordingly, agreed to end the tariffs it had imposed in retaliation against the US tariffs.
Canada secured a considerable victory by seeing the complete removal of the section 232 tariffs without having to maintain any residual quotas or restrictions on its exports. This contrasts heavily with the bargain struck early in the process by South Korea, which saw a quota at levels which were actually below then current export volumes.
Canada and the United States did agree to a “snap back” provision whereby tariffs could be resumed, on a product-by-product basis, if there is a surge beyond historic norms caused by imports from third countries (the parties agreed to treat steel melted and poured in their respective territories separately from that which is not). Essentially, Canada has committed to stepping up monitoring of imports of third country steel into its market to ensure there is no diversion from Canada or increased transshipment through Canada into the United States.
Both sides agreed to certain concessions on the “snap back” tariff structure. In the event the mechanism is used, the US committed to “cap” its potential new tariffs to only 25% for steel, and 10% for aluminum, even if the US administration believes a higher tariff would be required. Canada, for its part, agreed that any retaliatory tariffs could only be imposed on products in the same sector. It could not impose retaliation on, for example, bourbon or corn.
Canada and the US also agreed to immediate termination of ongoing litigation at the WTO regarding the section 232 tariffs and regarding Canada’s retaliatory tariffs. The US is surely relieved to avoid a repetition of the WTO dispute settlement body's recent ruling regarding the Russian claim that its national security justified travel restrictions on the Ukraine. A growing body of case law limiting the National Security Exemption would seriously weaken the hand of the Trump Administration if it sought to use section 232 as an economic cudgel in the future.
In keeping with its commitments, Canada’s customs agency, the Canada Border Services Agency, released Customs Notice 19-09: Repeal of the United States Surtax Order (Steel and Aluminum) and United States Surtax Order (Other Goods). Under the terms of the Customs Notice, the surtaxes imposed on US steel, aluminum, and a number of other products ceased as of May 19, 2019. It is likely that an Order-in-Council will be issued and published in the next issue of the Canada Gazette Part II, expected May 29, 2019 – with retroactive application to May 19.
There has not yet been an announcement by the Canadian government regarding the termination of the remission process, and a window may still be open for companies harmed by the tariffs to seek compensation through a retroactive remission request. This is a complex process in which McCarthy Tétrault's attorneys with experience in remission applications can be of significant help.