Source: Financial Post
Date: 14 August 2018
Canada eyes unprecedented safeguard tariffs on steel imports
Finance Minister Bill Morneau is launching formal consultations on whether to impose unprecedented trade measures to block a surge of steel imports diverted into Canada because of U.S. tariffs.
Morneau, who said an import surge has already been detected, announced Tuesday a 15-day consultation period during which he will evaluate possible safeguards on seven steel products, including plate, concrete reinforcing bar used in construction, hot-rolled sheet, wire rod and tubes for the energy industry.
If the consultations provide evidence of harm or threat of harm to producers, the federal government will impose immediate provisional safeguards to shield the industry while the issue is referred to the Canadian International Trade Tribunal (CITT) for inquiry.
Safeguards, deemed emergency actions by the World Trade Organization (WTO), are considered politically sensitive because they target both fairly and unfairly traded steel from all countries. Immediate “provisional safeguards” have never before been imposed in Canada.
“We’ve seen increases in imports. That’s an important reason why we’ve come forward today with seven products that we’re consulting on,” Morneau said during a visit to Hamilton steelmaker ArcelorMittal Dofasco. “That surge in imports of course leads us to be concerned that we need to consider what measures to take.”
Safeguards typically take the form of tariff rate quotas that allow a specific quantity or quota of a product to be brought in under standard duties, while imposing a prohibitive levy on all imports exceeding that level.
Canada rarely imposes safeguard measures and has only ever taken the step after reviewing the independent findings of the CITT. However, WTO rules permit countries to impose safeguards immediately for up to 200 days if there is objective evidence of “critical circumstances” suggesting a delay would cause damage to the industry.
“It is certainly highly unusual for the government to take a safeguard action without the objective evidence of the CITT,” said Debra Steger, a former senior trade negotiator who helped form the WTO. “The question is whether this is really a wise and necessary response to take a global safeguard action against all other countries when many of them are suffering with the same U.S. tariffs as we are. I’ve really never seen a case like this.”
Canada’s primary steelmakers — whose push for safeguards was first reported by the Financial Post — have argued a CITT investigation would take months, leaving an opening for significant damage to occur.
“We’ve been working with the government for a good amount of time now, talking about the challenges we see in the market and we believe the evidence justifies a safeguard action to protect the Canadian market,” said Joe Galimberti, president of the Canadian Steel Producers Association, which represents firms including ArcelorMittal Dofasco, Stelco Holdings Inc. and Algoma Steel Inc.
But the push for safeguards has raised objections from downstream steel fabricators and members of the construction industry who worry it will create a supply shortage and choke off access to products that can’t be obtained from domestic steel firms.
“We’re concerned about supply and we’re concerned about this process,” said Peter Clark, a trade strategist with Grey, Clark, Shih and Associates, who represents a variety of downstream producers, including those supplying the energy industry. “Prices are at record levels and steel producers made hundreds of millions of dollars in the first half of the year. I have no problem protecting Canadian industry from damage, no problem at all, but only if the facts prove it.”
Hamilton-based Stelco Holdings Inc. recently reported a 48 per cent jump in second quarter revenue and has said the steel tariffs will help expand its market by deflecting U.S.-made steel that would normally ship to Canada. Steel giants ArcelorMittal and U.S. Steel have also acknowledged the benefits of trade restrictions that have limited supply and driven up steel prices.
Separately, the Canadian Coalition for Construction Steel has insisted that safeguards will create a “supply crisis” that will jeopardize infrastructure projects and drive up the price of apartment condominium units. Canadian mills supply just half of Canada’s needs for construction steel and retaliatory tariffs have cut off supply from the U.S., which usually feeds a quarter of the remaining demand. As a result “Canada needs third-country imports more than ever,” the organization said in a release.
In addition, Canadian mills simply don’t produce many of the products that the industry needs, it said.
Morneau said the consultation period will provide and opportunity for parties to bring such concerns forward.
“We’ll be listening to producers, we’ll be listening to consumers, we’ll be listening to Canadians to make sure we get this right but, of course, we’re taking this action because we have reason to think this consultation period necessary.”
The European Union imposed provisional tariff rate quotas in July due to “indications” that steel was being diverted into its markets as a result of U.S. tariffs. The EU tariffs on 23 steel product categories are set at the average of imports over the past three years, with a 25 per cent tariff set for volumes exceeding those amounts.
Though Canada has been “extensively consulting with allies” throughout the trade discussions, Morneau said he would be focused on taking actions that “make sense for the Canadian market” rather than mirroring the EU measures.
Concerns about steel flooding domestic markets emerged after U.S. President Donald Trump imposed tariffs of 25 per cent on steel and 10 per cent on aluminum on March 23, citing national security concerns. Though Canada and Mexico were initially exempted from the tariffs, Trump allowed those waivers to expire on June 1 pending a successful renegotiation of North American Free Trade Agreement. Canada quickly hit back with tariffs on $16.6 billion worth of U.S. steel, aluminum and other goods.
Given the sizable tariffs in place, industry associations have warned that steel products previously bound for the United States could instead be diverted to other markets.
Safeguards are also likely to help assuage American concerns that Canada is being used as a hub for “transhipping” and the circumvention of trade rules, industry observers said. Illegal trans-shipping occurs when one country exports a product to a second country in order to falsify the product’s country of origin to dodge tariffs in a third country. Canada has already announced several measures to bolster its borders against such practices.
“These are extraordinarily difficult times for large parts of the Canadian steel producing industry and exceptional measures have to be taken,” said Lawrence Herman, an international trade lawyer at Herman and Associates, who is representing smaller steel firms involved in the issue.
“The law is there, the WTO allows it and Canada is proceeding accordingly. Some industries may find it affects them negatively, but safeguards are there to allow for a period of temporary relief allowing the industry to adjust to unforeseen and unusual circumstances, which is clearly and undeniably what we are faced with today.”