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Canada imposes steel safeguard tariffs, adjustment refunds; importers warn of shortages

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Finance Minister Bill Morneau will impose immediate global tariffs and quotas on steel imports designed to deflect a damaging flood of steel into Canadian markets as a result of U.S. tariffs.

The “provisional safeguard” measures on seven steel products — considered emergency actions by the World Trade Organization — will apply to all countries including China, but will provide specific exemptions for the United States, Mexico and developing countries.

The government will also provide relief in the form of refunds on import tariffs paid on imported U.S. steel and aluminum products that are in short supply in Canada.

“This is an adjustment mechanism giving the industry time to take a breather and deal with the surge of imports into this country,” said Lawrence Herman, an international trade lawyer at Herman and Associates, who is representing smaller steel firms involved in the issue. “Steel was flowing into Canada, there was a need for the government to take action.”

The safeguards are intended to prevent a damaging surge in imports by establishing a ceiling on the amount of each product allowed into the country under standard duties — set at the average of the past three years of import volumes. All imports exceeding that amount will face a tariff of 25 per cent.

The measures come into force on Oct. 25 and will remain in place for 200 days pending a full independent review of the evidence by the Canadian International Trade Tribunal (CITT) — the quasi-judicial body tasked with making a final recommendation to Morneau on whether the evidence warrants “final safeguards” that would last for three years.

The seven products affected are concrete reinforcing bar, steel plate, hot-rolled sheet used in auto manufacturing, energy tubular products, pre-painted steel, stainless steel and wire rod.

Canada is currently negotiating with the U.S. to remove tariffs of 25 per cent on steel and 10 per cent on aluminum imposed in June. Though U.S. President Donald Trump had said the removal of those tariffs was contingent on the revamping of NAFTA, he has yet to lift them following the announcement of the new U.S.-Mexico-Canada trade agreement last week. Canada currently has retaliatory tariffs in place on $16 billion worth of U.S. steel and other products.

The U.S. is exempted from the safeguard measures because it is already subject to retaliatory tariffs, the Finance Ministry said in a release. Imports from the U.S. were also found to have not “contributed importantly” to injury or threat of injury to the market, the release states. All imports from Mexico — with the exception of energy tubular and wire rod products — will also be excluded, as they don’t represent a significant share of imports.

The safeguard announcement prompted immediate concerns about potential supply shortages. A coalition of construction companies, called the Canadian Coalition for Construction Steel, previously warned that the Canadian industry cannot produce enough steel to supply the market and domestic steelmakers simply don’t make some products they require. Restricting the supply of those products could prompt a hike in prices that won’t be compensated by tariff refunds, they cautioned yesterday.

“My clients are very disappointed and feel like their concerns haven’t penetrated the government and were sacrificed to the interests of the Canadian steel industry,” Jesse Goldman, a partner at Borden Ladner Gervais LLP, representing the coalition. “Cutting off third-country imports will create a shortage, which means importers will be desperate for steel. This is a blank cheque for U.S. and Canadian steel producers to raise prices and we expect they will do so immediately.”

… the Canadian industry cannot produce enough steel to supply the market and domestic steelmakers simply don’t make some products required

The refunds on import tariffs announced yesterday will depend on the severity of the shortage, and will be paid out on a case-by-case basis. They will apply to levies already paid with indefinite future exemptions available in cases of ongoing short supply.

“The Government recognizes that Canadian countermeasures against U.S. imports can create challenges for Canadian manufacturers that rely on steel and aluminum imported from the U.S.,” the Finance Department said in a statement.

In August, Morneau launched a 15-day public consultation process on possible safeguards, saying increases in imports had been detected. The European Union imposed provisional tariff rate quotas in July citing evidence that steel was being diverted into its markets as a result of U.S. tariffs. The EU tariffs on 23 steel products are also set at the average of imports over the past three years, with a 25 per cent tariff set for volumes exceeding those amounts.

“This is not a process that was undertaken capriciously or without evidence,” said Joe Galimberti, president of the Canadian Steel Producers Association. “The government was presented with evidence of a significant increase in import volumes and is proceeding with safeguards. Given the global climate, that is appropriate.”



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