There has been a thawing of trade tensions between the US and Canada and the US and Mexico

By
Scott S. Lincicome, Brian Picone and Matt Solomon, White & Case,

On 17 May 2019, the US announced that it had reached agreements with Canada and Mexico to remove the US tariffs imposed on steel and aluminium products from those countries pursuant to Section 232 of the Trade Expansion Act of 1962, as well as the retaliatory tariffs that Canada and Mexico have imposed on US goods.

The US now has published the final text of the two bilateral agreements, and all three countries have taken the actions required thereunder to terminate the Section 232 tariffs and retaliatory measures as of 20 May 2019. We provide an overview of the latest developments below.

The US reached agreements with Canada and Mexico to remove US tariffs on steel and aluminium products from those countries, as well as the retaliatory tariffs Canada and Mexico have imposed on US goods Photo: Pixabay/Pexels/Pexels License

Bilateral agreements

On 18 May, the Office of the US Trade Representative published the full text of the bilateral agreements reached with Canada and Mexico to eliminate the Section 232 tariffs and retaliation. As shown below, the terms of the two agreements (which took the form of “joint statements” between the respective governments) are nearly identical:

1. The parties agreed that all Section 232 tariffs on Canadian and Mexican steel and aluminium products, as well as all tariffs Canada and Mexico imposed in retaliation for the Section 232 action, would be eliminated “no later than two days from the issuance” of the joint statements;

The specific actions that the parties will take under the new agreements, including to counteract transhipment and the importation of dumped and unfairly-subsidised goods, have not yet been determined

2. The parties will terminate all pending World Trade Organization litigation between them regarding the Section 232 action;

3. The parties will “implement [as-yet-determined] effective measures” to (1) “[p]revent the importation of aluminium and steel that is unfairly subsidized and/or sold at dumped prices”; and (2) “[p]revent the transhipment of aluminium and steel made outside of [Canada/Mexico] or the US to the other country”;

4. The US and Canada will establish an agreed-upon process for monitoring aluminium and steel trade between them, as will the US and Mexico. In monitoring for surges, “either country may treat products made with steel that is melted and poured in North America separately from products that are not”; and

5. In the event that imports of aluminium or steel products “surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share,” the importing country may request consultations with the exporting country. After such consultations, the importing party “may impose duties of 25% for steel and 10% for aluminium in respect to the individual product(s) where the surge took place”. If the importing party takes such action, the exporting country agrees to retaliate only in the affected sector (i.e., aluminium and aluminium-containing products or steel), thus ruling out “cross-retaliation” targeting other sectors. The agreement does not define the period of review or what would constitute a “meaningful” surge.

The agreement between the US and Mexico contains additional language providing that, in assessing whether there has been a surge in steel imports, each country will take into account certain quantities of imports needed for new investments. Specifically, “the US will consider that new investment in the US may require an additional 225,000 metric tons of billet from Mexico”, and “Mexico will consider that new investment in Mexico may require an additional 200,000 metric tons of cold-rolled steel from the US”, in assessing whether there has been a surge in steel imports.

The text of the US–Mexico agreement is available here. The text of the US–Canada agreement is available here.

Presidential Proclamations

In accordance with the bilateral agreements, President Trump on 19 March issued Proclamations providing that imports of steel and aluminium products from Canada and Mexico will no longer be subject to the Section 232 tariffs, effective with respect to goods entered for consumption or withdrawn from warehouse for consumption on or after 12:01 a.m. eastern daylight time on 20 May 2019. Any imports of steel or aluminium articles from Canada and Mexico that were admitted into a US foreign trade zone under “privileged foreign status” prior to 12:01 a.m. eastern daylight time on 20 May 2019 shall not be subject, upon entry for consumption made after 12:01 a.m. eastern daylight time on 20 May 2019, to the Section 232 tariffs.

The Proclamation states that the President has determined to terminate the Section 232 tariffs because the measures set forth in the new agreements with Canada and Mexico “will provide effective, long-term alternative means to address the contribution of these countries’ imports to the threatened impairment of the national security”. In light of this decision, the President also considered whether it is necessary to adjust (i.e., increase) the Section 232 tariffs as they apply to other countries, and determined that the appropriate course of action is to maintain the current tariff levels of 25 and 10% for steel and aluminium respectively.

The Proclamation concerning steel imports is available here. The Proclamation concerning aluminium imports is available here.

Termination of retaliatory tariffs

In accordance with the bilateral agreements, Canada and Mexico have taken the following actions terminating their respective retaliatory tariffs on US goods:

Canada — on 19 May, Canada’s Border Services Agency issued Customs Notice 19-09, which states that “[e]ffective May 19, 2019, the United States Surtax Order (Steel and Aluminum): SOR/2018-152 and the United States Surtax Order (Other Goods): SOR/2018-153 imposing surtax on certain products originating in the US are repealed. Please note that importers will no longer be required to pay surtax pursuant to the above-referenced orders”. The two surtax orders were introduced by Canada in June 2018 in response to the US’ Section 232 action, and applied to certain steel, aluminium, and other products of the US with an annual import value of approximately $12.8bn.

Canadian Customs Notice 19-09 is available here; and

Mexico — on 20 May, Mexico’s Ministry of Economy published a Decree repealing the provisions of its 5 June 2018 Decree that imposed retaliatory tariffs on approximately $3.6bn in US exports, including steel products, pork, apples, potatoes and cheese, among other items. The Decree repealing Mexico’s retaliatory tariffs took effect on the date of its publication in Mexico’s Official Gazette (i.e., 20 May 2019).

The Decree repealing Mexico’s retaliatory tariffs is available here.

Outlook

US business groups and Members of Congress of both parties have welcomed the new agreements to eliminate the Section 232 tariffs and retaliatory measures between the US, Canada, and Mexico. However, and as noted above, the specific actions that the parties will take under the new agreements, including to counteract transhipment and the importation of dumped and unfairly-subsidised goods, have not yet been determined. Moreover, the agreements contemplate the potential re-imposition of duties and retaliatory measures in response to import “surges” based on unspecified criteria. The US presidential proclamations terminating the Section 232 duties similarly contemplate the potential re-imposition of duties, stating that “[t]he US will monitor the implementation and effectiveness of these measures in addressing our national security needs, and [the President] may revisit this determination as appropriate”. Thus, despite the recent agreements, tensions related to steel and aluminium trade between the three countries could re-emerge in the future. Moreover, while some US business groups and Members of Congress have expressed hope that the agreements will provide new momentum towards US congressional approval of the US-Mexico-Canada Agreement (USMCA), influential congressional Democrats have reiterated in recent days that their primary concerns about the agreement (e.g., regarding labour, environment and enforcement provisions) remain unaddressed. Thus, despite the removal of the Section 232 tariffs and retaliation among the USMCA parties, it appears that the Agreement still faces an uphill battle in the US Congress.

Scott S. Lincicome, Brian Picone and Matt Solomon are Counsel, International Trade Analyst and Senior Trade Analyst respectively at White & Case, an international law firm based in New York City in the US. Contact the organisation here.

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