Largely overlooked amid the escalating dispute over the Trump administration’s latest actions against steel and aluminum imports are several important new trade enforcement measures that were recently implemented by the Trudeau government to further restrict the dumping and transshipment of these sensitive goods from China.
Following lengthy investigations called for last year by President Trump under the provisions of Section 232 of the Trade Expansion Act of 1962, the U.S. Department of Commerce recommended imposing punitive tariffs and/or restrictive import quotas on foreign producers of steel and aluminum in the interest of America’s national security.
Many people are understandably confused by an apparent policy disconnect between the stated aim of protecting struggling U.S. producers from the economic harm caused by China’s massive overproduction of industrial metals and the fact that the United States currently imports relatively little steel or aluminum from that country. In terms of quantity, China accounts for just over 2% of America’s steel imports and roughly 8% of its aluminum imports, according to 2017 data.
However, measuring steel and aluminum imports by country is not as straightforward as it might seem. American steel producers have long complained that China has a backdoor to U.S. markets through a practice known as transshipment, whereby countries buy Chinese steel and modify it before exporting to the United States. As noted by the Commerce Department, “Chinese and other producers and exporters often find ways to evade [U.S.] duties by transshipping through other countries and other techniques.”
Trump drew attention to this practice during March 6 remarks at the White House. “If you talk China, I’ve watched where the reporters have been writing 2 percent of our steel comes from China. Well, that’s not right. They transship all through other countries,” Trump said. “It doesn’t look good when it all comes out of China, so they send it through other countries, and it comes to us. And it’s putting our steel mills out of business.”
In reports summarizing the findings of its Section 232 investigations, Commerce was unable to quantify the amount of transshipment occurring, stating only that an “unknown portion” of Chinese steel is further processed in third-party countries before entering the United States.
While noting that “Canada already has one of the toughest enforcement regimes in the world to combat this practice,” the Trudeau government moved swiftly to address U.S. concerns about transshipment by announcing on March 27 that it was “strengthening enforcement further to stop foreign exporters from avoiding duties meant to level the playing field.”
The government’s new measures, which came into effect as of April 26, included the following modifications to the Special Import Measures Act (SIMA) and its associated regulations:
- New anti-circumvention investigations allowing the Canada Border Services Agency (CBSA) to identify and stop companies that attempt to circumvent duties (for example, by slightly modifying products or assembling them in Canada or a third country).
- Changes to the method of calculating duties to provide the CBSA with greater flexibility in determining whether prices charged in the exporter’s domestic market, which are used for comparison, are reliable or distorted owing to a “particular market situation.”
- Allowing for the participation of trade unions in trade-remedy proceedings, including at the Canadian International Trade Tribunal, in order to provide workers with a voice when determining whether unfairly dumped or subsidized foreign exports are harming domestic producers.
In addition to the above changes, just days before the Trump administration decided that it wouldn’t grant any further exemptions to Canada from its stiff new metals tariffs, the government announced that it was allocating new funding of roughly $7 million per year to hire 40 new customs officers to investigate trade-related complaints and would also be aligning Canada’s country of origin marking regime for steel and aluminum products with that of the United States.
Under the proposed changes, the scope of goods that are required to be marked to show where they were made will be expanded to match U.S. requirements by covering ALL steel and aluminum goods of foreign origin. Presently, Canada requires that only certain goods specifically identified in the regulations be marked with the country of origin. The government is also proposing to harmonize the rules of origin set out in Canada’s NAFTA country of origin marking regulations by making them consistent with U.S. requirements.
A statement by Finance Minister Bill Morneau said these moves would “help support effective customs enforcement by ensuring more consistent and predictable treatment of these goods by Canadian and U.S. authorities.”