Following Newly Signed Trade Agreement, Debates Over Tariffs Continue
December 19, 2018
Canadian Foreign Affairs Minister told the press today that President Donald Trump’s steel and aluminum tariffs contradict a key component of the new Canada-United States-Mexico Agreement (CUSMA), which will be replacing NAFTA.
After more than a year of often uncertain and highly charged negotiations, Mexico, Canada and the U.S. finally reached an agreement on tripartite trade earlier this fall. The agreement was signed on November 30 but still needs to be ratified by the legislatures of each of the three countries.
Despite this agreement being signed (and notwithstanding what it is actually going to be widely called), U.S. steel and aluminum tariffs introduced by President Trump during the negotiations and viewed by many as being punitive, continue to remain in place.
Section 232 Tariffs on Aluminum and Steel
Under the rarely utilized national security provisions under s. 232 of the Trade Expansion Act, President Trump introduced tariffs on aluminum and steel on March 8, 2018, creating additional import duties for steel and aluminum products.
These tariffs went into effect on March 3, 2018 and are based on country of origin (rather than country of export). They affect both Canada and Mexico, despite the tripartite agreement between the three countries.
Since then, Canadian steel imports have been subject to tariffs of 25%, whereas aluminum imports have been subject to tariffs of 10%.
Since the introduction of the tariffs, Canada has engaged in ongoing efforts to have them removed, and is currently disputing these tariffs in front of the World Trade Organization (WTO).
Invoking National Security Provisions is “Insulting”
Both Freeland and Prime Minister Trudeau have called the s. 232 tariffs “illegal” and “insulting” given the close security relationship between Canada and the U.S.
Freeland was in Washington D.C. last week with Defence Minister Harjit Saijan meeting with their American counterparts Secretary of State Mike Pompeo and Defence Secretary Jim Mattis. There, they pushed the tariff issue “hard”, particularly with Mattis given the national security pretext behind the imposition of these duties.
Exporters Being Negatively Impacted
While in Washington, Freeland also met with U.S. Trade Representative Robert Lighthizer, whom she had negotiated with in the NAFTA discussions, to further push the tariff issue. She argued that Canada’s quest to eliminate the tariffs was being supported by American businesses who are being directly affected.
A major focus of the new trade deal was the content requirements of cars built in Canada, U.S., and Mexico, and the “rules of origin” for automobiles was a key point of contention throughout the NAFTA discussions.
Freeland notes that American businesses are having a challenging time coming to terms with the fact that there is a tariff on Canadian steel while there is a simultaneous requirement that cars be built with North American steel.
In a statement to the Canadian Press last week, Prime Minister Trudeau noted that:
We have a broad alignment both on the benefits of trade between Canada and the United States, the negative impacts of tariffs that we hear from members of Congress, from business leaders and governors – how much they are very much aligned with us in trying to remove these unfair tariffs on steel and aluminum.
Where Do We Go From Here?
Despite Canada’s multi-pronged attack on the tariffs from both a national security and business perspective, it will be the U.S. Department of Commerce that will ultimately make a decision with respect to the aluminum and steel tariffs.
Kelly Craft, the U.S. ambassador to Canada, has said that the department is “actively engaged” in making a final decision.
As always, we will continue to follow developments with CUSMA as ongoing talks around tariffs continue and will provide updates as they become available. In the interim, if you have begun to anticipate what impact the ultimate outcome of the negotiations will have on your business in Canada or the U.S., contact the knowledgeable team at Feigenbaum Tax Law. To make an appointment, contact us online, or call our office toll free at (877) 275-4792.