The Maple Leaf Strikes Back: Canada Announces Retaliatory Tariffs on US Products

On May 31, 2018, the United States announced that it is imposing tariffs on the import of certain steel and aluminum products from Canada, at rates of 25% and 10% respectively, under section 232 of the Trade Expansion Act of 1962 . Using the power granted by this section, the Trump Administration is basing its tariff action on a finding that Canadian imports of steel and aluminum are threatening to impair the national security of the United States.
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The move threatens to ignite a trade war between the United States and Canada (as well as the European Union, Mexico and others who have also been targeted). As noted by Canada’s Prime Minister Justin Trudeau, this is a “turning point in the Canada-US relationship”. More broadly, the questionable reliance on national security threatens the integrity of the world trading order as governed by the agreements of the World Trade Organization, NAFTA and other trade deals. These implications are addressed in our earlier client alert U.S. Announcement of Massive Tariffs on Steel and Aluminum.

As with most trade wars, importers and exporters will be caught in the cross-fire. Upon receiving the news from the United States, Canada immediately announced that it will be imposing proportionate retaliatory tariffs on imports of certain US products.

Targeted Products

The retaliatory tariffs are designed to be so-called “dollar for dollar” tariffs – that is, they are intended to levy a similar amount of duty on US products to balance the duties imposed on Canadian steel and aluminum. Given the extensive steel and aluminum trade between the countries, and given that Canada is the largest supplier of steel and aluminum to the United States, these retaliatory measures will be amongst the highest ever imposed – totaling approximately $16.6 billion.

The current proposed plan is to levy the retaliatory tariffs on two groups of goods identified by their Harmonized System tariff classification. The first is primarily comprised of steel products set out in Table 1 below. These products will be subject to 25% duties. The second group of goods, found in Table 2 below, contains a potpourri of mostly consumer and retail products ranging from yogourt to dishwasher detergent to motorboats. These Table 2 goods are subject to 10% duties. The list has reportedly been designed by Canadian officials to exert the maximum amount of pressure on the Trump Administration by targeting products from swing states in the upcoming US midterm elections and key Republican congressional districts.

There are several important points to bear in mind when considering the proposed retaliatory tariffs:

They will apply on goods that originate in the United States. Canada will assess this on the basis of the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations. If the goods are eligible to marked as US origin, the duty will apply.
They will take effect July 1, 2018. However, the retaliatory tariffs will only apply to goods shipped on or after that date – goods that are in transit on July 1, 2018 will not be subject to the Retaliatory Tariffs.
They will remain in force until the United States eliminates its illegal tariffs on Canadian steel and aluminum.
Importer and Exporter Submissions on Proposed Retaliation

Companies should now be closely reviewing their existing supply chains and distribution channels to determine the impact of the US measures and Canada’s proposed retaliation. They should be considering competitive impacts and strategies for alternative sourcing or markets for their products.

It should also be noted that retaliatory tariffs on these products are proposed and not final. The Department of Finance is accepting written submissions up until June 15, 2018. This provides companies doing business on either side of the border with an important opportunity to have input on the proposed retaliatory tariffs, either to revise, remove or add products proposed for retaliation. The International Trade and Investment Law Group at McCarthy Tétrault has extensive experience working the Ministry of Finance with regards to these matters and can assist to ensure any submissions have maximum impact. We can also assist in restructuring supply chains and helping companies cope with the new measures as they come into force.