Canada to Raise Tariffs and Limit Subsidies for Clean Vehicles, Steel, and Aluminum from China
7 min read
On August 26, 2024, the Government of Canada announced that it will impose new tariffs and subsidy restrictions targeting clean vehicles, as well as tariffs on steel and aluminum products manufactured in China.1The tariffs on clean vehicles will enter into force on October 1, 2024, while the proposed tariffs on steel and aluminum are provisionally set to enter into force on October 15, 2024. Proposals for more trade restrictions targeting Chinese exports may emerge over the next few months. The actions make Canada the latest country to join a growing trend of increasing restrictions on Chinese imports. The United States (Canada’s largest trading partner) has maintained tariffs on Chinese vehicles and metals since 2018, which the Biden administration plans to increase in the coming months.2
Legal basis for additional tariffs
Canada’s August 26 tariff actions were made pursuant to Section 53 of Canada’s Customs Tariff Law, a significant but seldom used provision. Under Section 53, the government may take unilateral actions such as suspending rights/privileges under a trade agreement or impose a surtax (i.e., an additional tariff) on goods by classification or origin “for the purpose of enforcing Canada’s rights under a trade agreement in relation to a country or of responding to acts, policies or practices of the government of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.”
Canada previously invoked Section 53 in imposing retaliatory tariffs on US products in response to the US tariffs imposed on imports of steel and aluminum products (including from Canada) pursuant to Section 232 of the Trade Expansion Act of 1962.
100% tariff on Chinese clean vehicles
Canada will impose a new 100% tariff on imports of electric, hydrogen fuel cell, and hybrid cars, busses, delivery vans, and transport trucks that are manufactured in China.3 The tariff is scheduled to enter into force on October 1, 2024, and will apply on top of Canada’s 6.1% most-favored nation tariff, for a total tariff of 106.1% on imports of such clean vehicles from China. The August 26 announcement includes the final list of Harmonized System (HS) codes that will be subject to the 100% tariff.
The Government of Canada held a 30-day consultation on potential measures to protect the Canadian clean vehicle industry in July 2024.4 Announcing the consultations, the government stated that Canada’s automotive industry faces “unfair competition from China’s intentional, state-directed policy of overcapacity and lack of rigorous labour and environmental standards.” The statement also suggested that Canada is concerned that Chinese auto exports would be diverted to Canada after the United States raises tariffs, saying new trade restrictions would seek to “prevent trade diversion resulting from recent action taken by Canadian trading partners.”
Canada’s action on clean vehicles follows shortly after the European Union announced provisional tariffs of up to 38.1% in its countervailing duty investigation of Chinese electric vehicles and the United States announced plans to raise its existing Section 301 tariffs on Chinese electric vehicles to 100%, both of which the Canadian Department of Finance referenced in its announcement. Canada’s action, however, applies to a broader range of vehicle classes than the EU and US actions. The EU countervailing duty investigation only covers electric passenger cars, while the pending US tariff increase would not apply to trucks used for transporting goods or to hybrid buses (which would instead remain subject to the existing 25% Section 301 tariff).
25% tariff on Chinese steel and aluminum
The Government of Canada is proposing a new 25% tariff on imports of various steel and aluminum products manufactured in China.5 Unlike the clean vehicle tariffs, this additional tariff is not yet final. If Canada decides to impose the 25% tariff, it would enter into force on October 15, 2024. The announcement notes that shipments already in route to Canada as of October 15 would not be subject to the tariff.
The August 26 announcement provides a proposed list of the specific steel and aluminum products to be covered based on HS codes, which includes certain ingots, plate, sheet, bars/rods, wire, pipes, and other shapes. The new tariffs would only apply to direct imports of the listed products that are of Chinese origin, as described in Canada’s Determination of Country of Origin for the Purpose of Marking Goods (Non-CUSMA Countries) Regulations. The tariffs would not apply to downstream products, whether imported from China or a third country, under HS codes that are not on the final list. The Department of Finance plans to issue the final product list on October 1, 2024, after completing public consultations. The announcement adds that, if imposed, the government will review the tariff within one year, which may lead to further extensions or modifications.
The Department of Finance is accepting comments from the public until September 20, 2024. Stakeholders with an interest in the products for which Canada is proposing tariffs are encouraged to submit “reasons for the expressed support for, or concern with, the proposed surtaxes, including detailed information substantiating any expected beneficial or adverse impact.” The consultation notice provides more detail on where to address comments and procedures for protecting commercially sensitive information.
Changes to zero emission vehicle tax credits
The Government of Canada intends to limit eligibility for its zero emissions vehicle subsidies to vehicles and products that are manufactured in countries that have free trade agreements (FTAs) with Canada. The Canadian federal government maintains several subsidy programs to encourage adoption of zero emission vehicles. Unlike the complex national origin restrictions found in the US Inflation Reduction Act (IRA), the Canadian programs do not currently include national origin restrictions. According to Canada’s announcement, the new FTA restrictions would apply to the Incentives for Zero-Emission Vehicles (iZEV), the Incentives for Medium and Heavy Duty Zero Emission Vehicles (iMHZEV), and the Zero Emission Vehicle Infrastructure Program (ZEVIP). Further details of the proposed regulatory changes are not yet available.
Though the change is not targeted specifically at Chinese vehicles, imports from China would likely bear the brunt of the new restriction. This is because Canada has negotiated FTAs with all its other major automotive import sources, including the United States, Mexico, the United Kingdom, the European Union, Japan, and South Korea.
Potential for import restrictions in other sectors
The Government of Canada is also considering raising tariffs in other sectors that it calls “critical to Canada’s future prosperity,” such as batteries and battery parts, semiconductors, solar panels, and critical minerals. Before finalizing any tariff increases, the Department of Finance intends to hold a 30-day public consultation like it has with clean vehicles and steel and aluminum. According to the August 26 announcement, the government will issue a consultation notice “in the coming days to help inform any further government action.”6
Notably, the United States is also preparing to raise Section 301 tariffs on imports of batteries and battery parts, semiconductors, solar panels, and critical minerals from China.
Potential for other actions on clean vehicles
Besides tariffs and tax credit restrictions, Canada’s July consultation notice suggested interest in new investment restrictions and data security measures targeting Chinese automotive companies. The government did not follow up on those suggestions in the August 26 announcement, but it did not rule out future actions either.
On investment, the Investment Canada Act (ICA) gives the government authority to restrict certain foreign investments that raise national security concerns. Canada used ICA to force Chinese companies to divest from Canadian lithium miners in 2022 and could consider similar actions targeting other elements of clean vehicle supply chains.7
As for data security, the August 26 announcement highlighted concerns that “connected vehicles containing technology from China also pose significant risks to the privacy of Canadians, their data, and Canada’s national security interests,” but did not propose any specific data security policy actions. The United States has also expressed similar concerns in recent months. The US Bureau of Industry and Security (BIS) is currently developing new data security restrictions targeting the Chinese automotive industry, which may lead to new import prohibitions on certain vehicles (referred to by BIS as “connected vehicles”) and components manufactured by Chinese companies.8
1“Canada implementing measures to protect Canadian workers and key economic sectors from unfair Chinese trade practices,” August 26, 2024.
2 See here for White & Case’s latest coverage of the pending increase to US Section 301 tariffs.
3 “Surtax on Chinese-made Electric Vehicles,” August 26, 2024.
4 “Canada announces consultation to protect Canadian workers and electric vehicle supply chains from unfair Chinese trade practices,” June 24, 2024.
5 “Notice of intent to impose surtaxes on Chinese steel and aluminum in response to unfair Chinese trade practices,” August 26, 2024.
6 The Department of Finance posts consultation notices to its webpage at “Consulting with Canadians: Active Consultations.”
7 “Government of Canada orders the divestiture of investments by foreign companies in Canadian critical minerals companies,” November 2, 2022.
8 See here for White & Case’s coverage of the US investigation into connected vehicles from China.
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