The Canadian Border Services Agency announced Friday the final ‘safeguard’ surtaxes meant to shield the domestic steel industry from competition from cheaper foreign imports of heavy plate and stainless steel wire.
Canada’s steel producers had been hoping the federal government would protect its market for other kinds of steel as well.
But the Canadian International Trade Tribunal investigated the merits of provisional safeguards placed on five other products earlier this winter and reported it found inadequate evidence to support claims that surges in foreign steel imports posed a serious threat to the domestic industry.
“Canadian steelworkers can count on this government,” Finance Minister Bill Morneau said in the House of Commons last month after he confirmed that the final safeguard surtaxes would be applied only to two kinds of steel.
The federal government has started a 30-day consultation period with the industry to figure out what other forms of protection and support may be in order. “We are looking at multiple measures that we think can be in support of the industry,” Morneau said.
Ottawa considers its options
Hamilton, Ont. Liberal MP Bob Bratina said the government is trying to identify measures that would “achieve the same thing” as the measures the trade tribunal deemed unwarranted. “Can’t do it that way, we’ll find another way,” he said.
Both the Canadian Steel Producers Association (CSPA) and the United Steelworkers union have warned that steel shipments displaced from the United States by its 25 per cent tariff on foreign steel could flood into Canada instead and disrupt its market.
“That steel is looking for a place to land,” said Catherine Cobden, president of the CSPA. “Where does that surplus go? It will go to the places that have no protection, no stabilizing mechanisms.
“The job losses and investment not coming into this country will speak for itself.”
The Steelworkers union says that as a result of this recent market disruption, over 600 of its workers have been laid off — but some of the layoffs are temporary.
Some job reductions are at least partly attributable to the general slowdown in Canada’s resource industry, including delays in pipeline projects that require a lot of steel.
Steel industry representatives also say they believe the Trump administration won’t be willing to lift its “national security” tariffs on Canadian steel and aluminum unless Canada extends an equivalent tariff wall around its border — to prevent cheap steel from sneaking into the U.S. through Canada’s back door.
Transshipment and tariffs
In written responses to questions posed by the U.S. Senate Finance committee recently, United States Trade Representative Robert Lighthizer said that any “solution” that would lift the American tariffs would need to “avoid import surges and prevent transshipment” (steel from other countries transiting through Canada on its way to the U.S.), reduce excess production in overseas markets and contribute to “increased capacity utilization in the United States.”
The new safeguard surtax order takes effect next Monday, May 13 and replaces the provisional surtax placed on all seven steel products last October.
It doesn’t apply to steel from the U.S., which is subject to separate retaliatory tariffs in Canada. Several types of Mexican steel originally were subjected to the provisional surtax, but Canada negotiated an agreement with Mexico to exempt exports from this NAFTA partner earlier this year.
The final safeguards also don’t apply to steel from a set list of developing countries, as well as other countries with whom Canada has trade agreements: Chile, Colombia, Panama, Peru, the Republic of Korea and Israel.
The final safeguard surtaxes, like the provisional surtax, only kick in when shipments of foreign steel exceed historical averages. They apply until October 2021 and ramp down slowly between now and then to give the industry time to adjust.
For each product, a tariff rate quota (a limit, expressed in tonnes) is set for three periods — the first two lasting one year, and the third lasting 165 days. The surtax will be added to shipments above and beyond that quota.
For heavy plate, the surtax starts at 20 per cent in the first year and decreases first to 15 per cent and then ten per cent for the final 165 days.
For stainless steel wire, the surtax rate starts at 25 per cent, then drops to 15 per cent after a year before falling to five per cent for the final period.
The case for killing surtaxes quickly
“The sooner you end them, the less total pain you’re causing yourself,” said Christine McDaniel, a former White House economic adviser, now a senior research fellow with the Mercatus Center at George Mason University.
“The longer they stay on, the harder it is to take them off, because the steel industry gets dependent on these high prices, because they’re artificially induced, not a price boost coming from real economic forces.”
McDaniel, who has been analyzing the effects of U.S. steel and aluminum tariffs, dismisses the idea that Canada’s safeguards (or lack of them) carry much weight in Washington’s decision-making on steel tariffs. There are longstanding processes in place to prevent the dumping of unfairly-traded steel, she noted.
The steel producers, she said, “have a louder voice” in the current political climate and are using the opportunity to get all the protection they can.
If the Americans really were worried about transshipments, she said, the two countries’ customs authorities could figure out a way to verify the true origin of steel entering the U.S.
Steelworkers call for ‘strong message’
That’s not how the United Steelworkers union sees it.
“Unless Canada’s prepared to send a strong message to the White House that we’re prepared to protect our steel markets, we’re not going to be able to persuade the U.S. to lift those … tariffs,” spokesperson Mark Rowlinson said on CBC News Network’s Power & Politics last month.
“We’ve heard stories of literally ships full of tonnes and tonnes of rebar, coming across both oceans, the Atlantic and the Pacific, looking for warehouses in Canada.”
But trade lawyers dispute the likelihood of this happening, pointing to the evidence the tribunal heard and considered before coming to its recommendation for Morneau.
“Canada has 46 anti-dumping orders against steel products from 23 countries,” said Jim McIlroy, who argued on behalf of clients at the tribunal’s hearings in January that Canada should not continue the safeguards. “It’s not as if there’s a whole lot of steel whizzing around coming into Canada that is not subject to dumping duties.
“Canada’s regime is very effective at blocking unfairly-traded goods from entering the Canadian market.”