On March 27th, 2018, the Government of Canada announced new measures aimed at preventing the transshipment and diversion of steel and aluminum into Canada to avoid recently imposed United States tariffs on the metals. These measures will be subject to a 15-day consultation period through the Canada Gazette.
Amongst the regulatory changes suggested is the creation of new anti-circumvention investigations that will allow the Canada Border Services Agency (CBSA) identify and stop companies that try to dodge duties (for example, by slightly modifying products or assembling them in Canada or a third country for further shipment to the United States). The CBSA will also be granted greater flexibility in determining whether prices in the exporter’s domestic market are reliable or distorted.
Canada’s measures are the result of the new tariffs on steel and aluminum imposed by the U.S., which came into effect on March 23rd, 2018. U.S. President Donald Trump imposed tariffs of 25 percent on steel and 10 percent on aluminum, the result of a Section 232 investigation conducted by the U.S. Commerce Department which found that such imports posed a national security threat to national security.
The biggest exporters of steel to the U.S., including Canada, Mexico, Australia, Argentina, Brazil and South Korea, have received exemptions valid until May 1 to negotiate “satisfactory alternative means,” according to the White House. Ottawa’s new measures may be part of an effort to convince Washington to grant a more long-term, or permanent, exemption to the tariffs.
Various commentators posit that the above-mentioned nations are not the target of the tariffs. In fact, China is the largest producer of steel globally, accounting for half of the world’s production. Due to numerous trade remedies covering an estimated 90 percent of steel from China, however, such imports represented just two percent of total imports to the U.S. in 2017.
Statements by the Trump administration indicate concern with Chinese steel imports. On March 8th, 2018, President Trump stated “Transshipping, frankly, is a big deal. China says it’s got 2 percent, but it sends much more.” The practice of transshipping entails one country exporting a product to another country by using a third country as a conduit. This practice is illegal if the intention of the exporting company is to falsify or disguise the product’s country or origin and evade tariffs and duties.
Trade experts, however, cite several factors that challenge the Trump administration’s claims about the extent of this problem. First, transshipment is difficult to measure, and even if there is a practice of falsification of origin, it is not significant enough to make Chinese exports to the U.S. sizable. Second, experts contend that China’s practice of shipping metals to its Asian neighbours, where they undergo slight modifications, does not constitute transshipment, as the end product has been altered from its original form.
While the main target of the tariffs may be China, other countries in addition to Canada have taken steps to ensure that the United States remains an open market for their steel exports. South Korea, which supplied about ten percent of steel imports to the United States in 2017, offered to lower barriers to entry for American automobiles. It also agreed to adhere to a quota of 2.68 million tonnes of steel exports to the United States a year, roughly 70 percent of recent annual volumes. Time will tell how the United States’ “carrot and stick” approach to steel and aluminum tariffs as an invitation for simultaneous trade negotiations affects the global trading order.