Written by Darrel H. Pearson, George W. H. Reid, Sabrina A. Bandali, Margaret M. Kim, Jessica B. Horwitz and Jessica L. Roberts
Without fanfare or announcement, the Government of Canada made two important amendments to the provisional surtaxes on steel products imported into Canada:
- an increase in the volume of energy tubular products and wire rod from Mexico that can be imported free of the provisional surtaxes; and
- an exemption for Canadian-origin steel re-imported into Canada from provisional surtaxes.
The amendments went into effect on February 2, 2019. After the CITT issues its final safeguards inquiry report in April, assuming that the CITT recommends imposing final safeguard measures, it will be important for importers to engage with the anticipated public consultation process before the Government of Canada imposes final safeguard measures.
On October 25, 2018, the Government of Canada imposed provisional safeguard measures on imports of seven categories of steel products (heavy plate, concrete reinforcing bar, energy tubular products, hot-rolled sheet, pre-painted steel, stainless steel wire and wire rod), with exemptions for certain countries. As explained in our previous update, these provisional safeguard measures take the form of tariff rate quotas (TRQs), with a 25% surtax on importations outside of quota. The provisional safeguards apply to importations of these products for 200 days until May 13, 2019.
Canada Grants Mexico Additional Quota for Energy Tubular and Wire Rod
The amendments introduce a separate TRQ allocation for Mexican-origin energy tubular products and wire rod, under a Memorandum of Understanding (MoU) between Canada and Mexico that was signed on January 16, 2019. Previously, Mexican imports of these products had to share in the global quota allocation, and could not exceed the total access quantity permitted for any single country (originally 23% for energy tubular products and 47% for wire rod). Other Mexican steel products were exempt from the provisional safeguards.
With the amendments, there is a separate TRQ volume for Mexican imports of these products. Of considerable interest to importers, the creation of TRQ volumes specific to Mexico for energy tubular products and wire rod did not reduce the TRQ for these products imported from countries other than Mexico. Rather, the overall TRQ volume available for these two product categories has increased by 6.26% and 17.9%, respectively. The total access quantity permitted for any single country subject to provisional safeguards (other than Mexico) is now also much higher: 30% for energy tubular products, and 74% for wire rod.
The MOU suggests that the Government of Canada amended the safeguard quota for Mexican Energy Tubular Product and Wire Rod for two key reasons. In exchange for the increased quota volume, Mexico (i) agreed not to initiate any trade disputes against Canada on the validity of the safeguards under the WTO or NAFTA; and (ii) also agreed to “immediately attend to any backlog of Canadian steel exports at the Mexican border”.
Exemption for Re-importations of Canadian-Origin Steel: Addressing the Absurdity
The amendment also exempts reimported Canadian-origin steel products from the provisional safeguards surtax. The applicable rules to determine whether a steel product is Canadian-origin are in the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations.
Canadian-origin goods that were exported and subsequently re-imported were, until the amendment, subject to the provisional safeguard measures. To address the absurdity of collecting surtaxes on imports of Canadian steel, in the name of protecting Canadian steel production, an importer of Canadian steel could obtain relief from the provisional safeguards surtaxes by applying for duty relief under a drawback or other remission program. The new exemption better aligns the policy and implementation of the steel safeguards.
Importers Need to Engage With the Canadian Government
The Canadian International Trade Tribunal (CITT) recently concluded its safeguard inquiry and will issue its recommendations to the Government of Canada on April 3, 2019. The Government of Canada will issue its decision on the form and duration of steel safeguards before May 13, 2019, which is the date provisional safeguard period ends. Under the CITT Act, safeguard measures can be imposed for up to four years with one renewal, for a maximum of 8 years (including any period in which provisional safeguards were in effect).
Once the CITT issues its final safeguards inquiry report in April, we anticipate that the Government of Canada will seek some form of public input before imposing final safeguard measures. For importers affected by the provisional safeguards, it will be important to engage with the Canadian government to communicate what aspects of the provisional safeguards have worked and what has created difficulties for businesses.
Bennett Jones can assist importers and others affected by the provisional safeguard measures to ensure that their perspectives and experience are considered if and when the Government of Canada imposes final safeguard measures.