Yes, Canada should be very concerned about the Section 232 Report on steel, which is due to be issued this week (but may be released next week after July 4, 2017). By way of background, on April 19, 2017, the U.S. Department of Commerce initiated a section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862) investigation in respect of “the effects of steel imports on US national security”. On April 20, 2017, President Trump signed a Presidential Memorandum instructing the U.S. Department of Commerce to prioritize the section 232 investigation into “steel imports”. Also on April 20, 2017, the U.S. Department of Commerce issued a Notice concerning the Presidential Memorandum and contained statements from Secretary Ross. On April 20, 2017, the U.S. Department of Commerce issued a Fact Sheet, which does not say that Canada will be excluded from the investigation.
In particular, the Presidential Memorandum states:
“Core industries such as steel (including specialty steel unique to defense applications), aluminum, vehicles, aircraft, shipbuilding, and semiconductors are critical elements of our manufacturing and defense industrial bases, which we must defend against unfair trade practices and other abuses. In the case of steel, both the United States and global markets for steel products are distorted by large volumes of excess capacity ‑‑ much of which results from foreign government subsidies and other unfair practices.”
What may be covered by the section 232 steel report may be broader than steel billets, hot-rolled steel plate, coils, pipe, tube, rebar, OCTG, etc. Canada’s first concern should be about the scope of the section 232 report. The broader the scope, the more Canadian manufacturers that may be negatively affected. Will it cover steel screws, for example? Will it cover steel products that are not generally considered to be connected with the defense industry?
Second, the United States imports more steel from Canada than any other country (South Korea is a close second). The March 2017 U.S. International Trade Administration Global Steel Trade Report indicates that 17% of steel imported into the United States comes from Canada. Also, there are no antidumping or countervailing duties imposed in the United States against steel products from Canada. There has not been a recent steel trade war between Canada and the United States. This makes sense due to the integrated nature of the North American steel market and various industries that use steel (e.g., automobile manufacturers). Canada should be concerned that it will be caught in the U.S. section 232 report and President Trump will not exclude Canada’s exports.
Third, if the United States imposes prohibitive duties on steel imports from other countries (including Canada), Canada will lose an important export market or that market will be diminished. This means that Canada will have excess steel. At the same time, other countries will lose an important export market (U.S.) and will look for a new export market for their excess capacity. Canada may see more steel imports at a time when its main export market is gone. Canadian steel producers may not have alternative export markets as the other countries will be struggling with the consequences of the U.S. section 232 duties.
Fourth, if President Trump imposes tariffs, prices will go up for U.S. manufactured goods that have steel as a major input. There will be a ripple effect in the North American market. Canadians should be concerned about inflation.
Fifth, if President Trump imposes tariffs, which should be expected, many countries will file disputes with the World Trade Organization (“WTO”). First there is a consultation process at the WTO. Then there is a dispute settlement panel report (which should determine that the U.S. measures are inconsistent with WTO obligations). It is likely that the United States will appeal to the WTO Appellate Body in order to prolong the tariffs. It will only be until after the Appellate Body Report and the moment of retaliation that the United States will stop imposing the duties. This may take 3-4 years.
For more information about trade remedies, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. There is information about trade law on the LexSage website.