Federal bill may impact steel trade

A federal bill that has eliminated two sections of the Customs Tariff could provide flexibility for the Canadian government to implement protective measures on some types of steel products.

Jessica Horwitz, a senior associate in international trade and investment with Bennett Jones LLP, says provisions contained in Bill C-101 could potentially be used to restrict the trade of certain categories of steel products.

The new federal bill will “temporarily eliminate” two subsections of the federal Customs Tariff, according to an update prepared by Bennett Jones. The change in legislation means the federal government would be allowed to impose protective tariffs to defend Canada’s steel sector in the next 24 months.

“These provisions [that have now been temporarily eliminated] prevent Canada from immediately re-imposing further safeguard measures on products that were recently the subject of provisional safeguard measures,” said the firm’s update.       

Bill C-101 — which passed in both the House of Commons and the Senate in late June — has its roots in the federal government’s concern around the domestic steel trade, an industry that’s also of high importance to U.S. President Donald Trump.

In October 2018, the federal government said it would be imposing surtaxes on seven types of steel imports, according to a CBC report.

This applied to products such as heavy plate, concrete reinforcing bar (rebar), hot-rolled sheet, pre-painted steel, stainless steel wire and wire rod. However, the CBC reported that in April 2019 that the Canadian International Trade Tribunal ended the surtax on five of the products due to a lack of evidence for their rationale.

Therefore, the safeguard measures, through tariff rate quotas, continue to exist only for two categories of steel products — heavy plate and stainless-steel wire. These measures, notably, do not apply to goods from the United States or countries such as Chile, Colombia, Mexico, Panama, Peru, South Korea or Israel. They will stay in effect until 2021.

“The government hasn’t done anything yet that is contrary, for example, to the WTO Safeguards Agreement. What this amendment does is it removes the Canadian domestic legislative barrier to them being able to do that. So, they haven’t imposed any protective measures yet, but having passed this amendment, it will allow them to move more quickly if they decide they want to do it in the coming months,” she says.

The bill is notable because “it demonstrates the Canadian government’s defensive stance in the context of an unpredictable global trading environment,” says Horwitz.

“If there is a surge in imports [of one of these five categories] in the next two years, the government could consider re-imposing safeguard measures in relation to that product; whereas, without these amendments, they would be prohibited from doing so,” she says.

The firm notes in its update that there is a larger context to consider.

“Bill C-101 suggests that the Canadian government is concerned about the results of the CITT’s finding in respect of the five categories of steel products for which safeguards were discontinued and would like to give itself the ability to re-impose provisional safeguards on these categories and conduct another inquiry within the next 24 months if it finds such a step to be warranted,” says the update.

Brenda Swick, a partner at Cassels Brock & Blackwell LLP in Toronto, says there is intense pressure on the Canadian government to protect its steel industry, after other countries have done the same.

“It is not surprising then that, under the current protectionist climate, the government has decided to give itself some additional flexibility for re-applying safeguard measures on certain products earlier than it otherwise would be allowed to under the WTO rules,” she says.

“This is not to suggest it is legally correct, but it is the reality.”

Swick says many governments around the world introduce measures that are not compliant with the WTO. However, this can lead the governments to find that “the measures are no longer needed by the time they are ruled non-compliant by the WTO.”

“We are in cat-and-mouse game when it comes to steel tariffs and the only real advice is to understand, monitor and seek exemptions from the duties if your client is an end user of the imported product, absent finding alternative global or domestic sourcing strategies,” she says.

Cyndee Todgham Cherniak of LexSage PC in Toronto says the federal government is trying to achieve two goals in its actions.

“The main takeaways for lawyers is that we’re trying to undo part of the past because of the steel safeguards in the U.S. that were in place against Canadian steel; that’s part of it,” says Todgham Cherniak. “The other half is we’re, in my view, the [federal] government is still trying to court favour with the steel industry, the workers and the unions. ‘We got your back’ is the message that they’re sending.”

If the goal of the government is to have Canadian companies buy more from the Canadian steel companies than foreign steel, then it will probably be successful, says Todgham Cherniak.

“If the goal is to protect the Canadian industry and artificially create a demand for steel in Canada, then we’re probably going to reach that short-term goal, but in the long term, the safeguards can only be in place for three years,” she says. “There’s a limited period of time that the safeguards can be in place. So, what’s going to happen down the road? We’re pushing the problem down the road.”

Todgham Cherniak says if the U.S., Canada and Europe all have safeguard duties in place, it will increase steel production capacity.
“Then, we’re not solving the problem of global over-capacity, we’re actually adding to that problem,” she says.