Retaliatory Tariff Submission

Michèle Govier
Director General, International Trade Policy
Finance Canada

Scott Winter
Senior Director, Trade Rules
Finance Canada


Re: Aluminum countermeasures

Dear Michèle and Scott:

Thank you for the opportunity to comment on Finance Canada’s August 6, 2020 Notice of intent to impose countermeasures action against the United States in response to tariffs on Canadian aluminum product consultation. The imposition of countermeasure tariffs on American exports is a regrettable, but necessary, measure to place pressure on the United States to rollback its unjustified national security tariffs. We support the government in its ongoing efforts to find a speedy resolution to this situation.

However, the imposition of these tariffs and countermeasures comes at a fragile economic period as our country recovers from the economic fallout of COVID-19. Therefore, any countermeasures implemented need to minimize negative economic impact to Canadian businesses.

While understanding the government’s overarching goal of dollar-for-dollar countermeasures to deliver a meaningful response, the Canadian Chamber wants to relay the feedback we have received from our members about the proposed product list, which broadly falls under two categories.

The first area relates to products that are final consumer goods. In addition to the obvious outcome for consumers of higher prices, proposed surtaxes on final products such as appliances and sports products will slowdown economic activity, which will affect warehousing and distribution activity. In our current economic circumstance, slowdowns in economic activity pose the risk of layoffs or reduced hours of work for employees. Additionally, given the lack of domestic manufacturing of certain goods, those seeking to substitute products with Canadian-produced alternatives will face difficulties. Concerns have also been expressed about the degree to which some items on the draft list may ultimately contain aluminum and whether these products indeed meet the retaliatory threshold outlined in the May 2019 Joint Statement.

The second category of concerns raised by companies is in relation to those that use aluminum as an intermediary input in their supply chain. Companies using aluminum will face input cost increases, which will weigh down on competitiveness. Additionally, this will exacerbate price pressures companies already face further downstream in the supply chain from their customers where they have fixed contracts in place. This includes companies operating on thin margins in the food industry, as well as sectors that use speciality products requiring government certification, such as the aerospace industry.

In addition to the feedback companies have raised with us, there are five specific recommendations we wish to offer in the context of this consultation.

Surtax exclusion process

Despite the government’s efforts to seek a balanced outcome, companies will still face unique situations that will necessitate the need for an exemption to the surtax. This release valve was provided under the previous surtax implementation period and it is critical that such a process is once again available for companies to utilize during this period. However, companies that applied under the previous regime expressed concern to us about the assessment criteria and timelines for granting exemptions.

Recommendation: The surtax exclusion process should provide in advance as explicitly as possible the criteria that companies’ applications will be assessed against, as well as service standards for responses to be provided to applicants. Additionally, given companies will have completed work already during the last round of surtaxes to provide a good set of initial baseline evidence, we recommend the government use this evidence to provide an expedited process for companies seeking an exclusion on the same items identified from the 2018-19 process.

Duty Drawback Program

The implementation of the surtax countermeasures also needs to be seen in the context of Canada’s duty drawback program. Companies will need the duty drawback functioning at its fullest to ensure that those who are not able to benefit from exclusions will be able to use the drawback program. This is especially crucial at a time when as the economy recovers from COVID-19 and cash flow remains tight. Concerns with the timeliness of the duty drawback program were noted at the Chamber’s 2019 AGM, where a resolution passed calling for claims to be finalized and processed within 120 days of their submission.

Recommendation: The government should ensure that there is fully staffed complement within CBSA to process duty drawback claims in a timely manner. Claims should be processed and finalized with 120 days of their submission.

Product Rotation

Given the pressures surtaxes will place on certain companies, it is critical that pain be short-lived for Canadian businesses, particularly given the unclear end date for when this latest round of tariffs will end.

Recommendation: The government should ensure the list of products subject to surtaxes is rotated on a six to nine month basis, accompanied by industry consultations. This will ensure no particular Canadian company or sector shoulders a disproportionate burden and that the product list remains relevant to the US domestic political context.

De-Minimis Threshold

Since the current de minimis threshold under the Postal Import Remissions Order and Courier Import Remissions Order means companies do not pay duties on goods imported from the U.S. below $20 and $40 respectively, customs brokers do not track goods for tariff classification purposes below that threshold. Goods which have a value for duty below these thresholds do not have a Harmonized Commodity Description and Coding System (HS Code) attributed to them, and are therefore not easily identifiable. Consequently, there is no avenue for companies to assess whether goods imported under the de minimis threshold would be on the list of products subject to the surtax. Tracking goods below the de minimis would only be possible through a drastic overhaul of the structures and systems that intermediate the relationship between logistic providers and their customers. Such changes would not be feasible within the short-term, and represent a fundamental break from how customs systems presently operate by imposing substantial new burdens on consumers and businesses.

Companies operated during the 2018-2019 countermeasure period with significant uncertainty about the government’s potential enforcement of the surtax on goods below the de minimis threshold. Businesses need to have greater certainty about the de minimis threshold during this round of countermeasures.

Recommendation: The government provide clarity for businesses and consumers by making explicit that the $40 and $20 thresholds in the CIRO and PIRO will also apply for the application of the surtaxes. This should be announced to coincide with the final publication of the retaliatory tariff list.

Global Overproduction

Despite the baseless claim that Canadian aluminum exports constitute a national security threat to American industry, it is critical that Canada and the United States continue to work together to tackle the root causes of distortive industrial subsidies that lead to global overproduction. This is particularly important for Canada in the context of the economic recovery from the pandemic as foreign governments provide financial support to their domestic industries, which places our companies at a disadvantage.

Recommendation: The government continue its proactive work through the Ottawa Group, OECD, WTO, G7, and G20 on developing global standards to impose transparency and greater disciplines on distortive subsidies.

Thank for your consideration of our submission. We would be happy to discuss further any aspects of this further.

Regards,

Mark Agnew
Senior Director international Policy
Canadian Chamber of Commerce