Order Imposing a Surtax on the Importation of Certain Steel Goods: SOR/2018-206
Canada Gazette, Part II, Volume 152, Number 22
Registration
October 11, 2018
CUSTOMS TARIFF
Whereas the World Trade Organization Agreement on Safeguards allows for the application of a safeguard measure to a good if it is determined that such good is being imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive goods;
Whereas the World Trade Organization Agreement on Safeguards further allows for the application of provisional safeguard measures for a 200-day period, in critical circumstances where delay would cause damages difficult to repair;
Whereas it appears to the satisfaction of the Governor in Council, on the basis of a report of the Minister of Finance, that for each class described in the schedule to this Order, all of the steel goods, taken together, are being imported into Canada in increased quantities and have caused or threaten to cause serious injury to domestic producers of like or directly competitive goods;
And whereas, on the basis of the report of the Minister of Finance, it does not appear to the satisfaction of the Governor in Council that the conditions set out in subsection 59(1) of the Customs Tariff footnote a have been met with respect to certain goods imported from Mexico and to goods imported from the United States, Chile, or Israel or another CIFTA beneficiary;
Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 55(1) of the Customs Tariff footnote a, makes the annexed Order Imposing a Surtax on the Importation of Certain Steel Goods.
Order Imposing a Surtax on the Importation of Certain Steel Goods
Origin of the goods
1 For the purposes of this Order, the origin of the goods is determined in accordance with the rules of origin set out in the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations or the Determination of Country of Origin for the Purpose of Marking Goods (Non-NAFTA Countries) Regulations, as the case may be.
Application
2 (1) Subject to subsections (2) to (4), this Order applies to goods of a class that is set out in column 1 of the schedule, and that is described in column 2, that are imported from all countries.
Exception
(2) This Order does not apply to goods being imported from the United States, Chile or Israel or another CIFTA beneficiary, and originating in that country.
Exception
(3) This Order does not apply to goods being imported from Mexico, other than those described in classes 3 and 7 of the schedule, and originating in that country.
Exception
(4) This Order does not apply to goods being imported from a country benefiting from the General Preferential Tariff — and originating in that country — for which importation of the goods of the class in question did not, in 2017, exceed 3% of the total importation of goods of that class, provided that the importation of goods of that class from all countries benefiting from that Tariff did not, in 2017, exceed 9% of the total importation of goods of that class.
Surtax
3 (1) Subject to subsections (3) and (4), if all the goods of a class that is set out in column 1 of the schedule, and that is described in column 2, are imported in excess of the quantity referred to in column 3 for that class during one 50-day segment included in the period of 200 days beginning on the day on which this Order comes into force, those goods are subject to a surtax at the rate of 25% of their value for duty, the value for duty being determined in accordance with sections 47 to 55 of the Customs Act.
Clarification
(2) For the purposes of subsection (1), the quantity referred to in column 3 of the schedule applies to four consecutive 50-day segments — the first segment beginning on the day on which this Order comes into force — and any remaining portion of the quantity that is unused at the end of a segment is carried forward into the next segment.
Permit
(3) For the purposes of subsection (1), the goods are considered to be imported in excess of the quantity referred to in column 3 of the schedule if they are not imported under a permit that is issued pursuant to the Export and Import Permits Act in respect of item 82 of the Import Control List and valid at the time at which the goods are accounted for under subsection 32(1), (3) or (5) of the Customs Act.
Quantity limit
(4) For the purposes of subsection (1), the goods are considered to be imported in excess of the quantity referred to in column 3 of the schedule if they originate in a country for which importation of the goods of the class in question exceed the percentage set out in column 5 of the quantity referred to in column 4.
Coming into force
4 This Order comes into force 10 business days after the day on which it is registered.
SCHEDULE
(subsections 2(1) and (3) and section 3)
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
Column 5 |
|---|---|---|---|---|
|
1. Heavy Plate |
Hot-rolled carbon steel plate and high-strength low-alloy steel plate not further manufactured than hot-rolled, heat-treated or not, in widths from 80 inches (± 2,030 mm) to 152 inches (± 3,860 mm, and thicknesses from 0.375 inches (± 9.525 mm) to 4.0 inches (101.6 mm), with all dimensions being plus or minus allowable tolerances contained in the applicable standards. For greater certainty, these dimensional restrictions apply to steel plate, which contains alloys greater than required by recognized industry standards provided that the steel does not meet recognized industry standards for an alloy-specification steel plate. The following goods are excluded:
|
12,918 |
51,672 |
23% |
|
2. Concrete Reinforcing Bar |
Hot-rolled deformed steel concrete reinforcing bar in straight lengths or coils, commonly identified as rebar, in various diameters up to 56.4 millimeters, in various finishes. |
35,332 |
141,328 |
23% |
|
The following goods are excluded:
|
||||
|
3. Energy Tubular Products |
Carbon and alloy steel energy tubular products, including line pipe, tubing, and casing, finished or unfinished, welded or seamless, having a nominal outside diameter from 2.375 inches (60.3 mm) to 60 inches (1,524 mm) (with all dimensions being plus or minus allowable tolerances contained in the applicable standards), heat treated or not heat treated, regardless of length, wall thickness, surface finish (coated or uncoated), and end finish (plain, bevelled, threaded, or threaded and coupled), in all grades, meeting or supplied to meet American Petroleum Institute (API) 5L, API 5L-B, API 5CT, Canadian Standards Association (CSA) Z245.1, International Standards Organization (ISO) 3183, American Society for Testing and Materials (ASTM) ASTM A333, ASTM A106, ASTM A53-B or their equivalents or enhanced proprietary standards, whether or not actually certified or stenciled, whether or not meeting specifications for other end uses, including single-certified, dual-certified or multiple-certified, for use in oil and gas, piling pipe, or other applications. For greater certainty, this class includes casing and tubing that are referred to as "green tubes" in the industry. These are formed tubes with the requisite chemistry and dimensions of casing or tubing, but that require further processing before they may be used in a well. They are included in this class as unfinished, non-heat treated, or plain end pipe. The finishing required may be heat treatment, threading, coupling, testing, or any combination of these processes. The following goods are excluded:
|
64,348 |
257,392 |
23% |
|
||||
|
||||
|
4. Hot-rolled Sheet |
Flat hot-rolled carbon and alloy steel sheet and strip, including secondary or non-prime material, in various widths from 0.75 inches (19 mm) and wider, and
|
15,299 |
61,196 |
37% |
|
The following goods are excluded:
|
||||
|
5. Pre-painted Steel |
Pre-painted flat-rolled products of non-alloy and alloy steel (not including stainless steel) which are painted, varnished or coated with plastics on at least one side, in coils or cut lengths, in thicknesses up to 0.079 inches (2.0066 mm) and widths up to 61.5 inches (1562.1 mm) with all dimensions being plus or minus allowable tolerances contained in the applicable standards. |
11,635 |
46,540 |
35% |
|
The following goods are excluded:
|
||||
|
6. Stainless Steel Wire |
Cold drawn and cold drawn and annealed, stainless steel round wire, up to 0.256 inches (6.50 mm) in maximum solid cross-sectional dimension; and cold drawn, and cold drawn and annealed, stainless steel cold-rolled profile wire, up to 0.031 square inches (0.787 sq. mm) in maximum solid |
467 |
1,868 |
25% |
|
7. Wire Rod |
Certain hot-rolled products of carbon steel and alloy steel, in coils, of approximately round cross section, less than 19.00 mm in actual solid cross-sectional diameter. |
11,513 |
46,052 |
47% |
|
The following goods are excluded:
|
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the orders.)
Issues
Global steel trade and imports of steel into Canada have been affected by unforeseen developments, including overcapacity in steel production globally, as well as measures that a number of countries have taken or are considering taking to restrict imports of steel into their markets. Starting in March 2018, the United States (U.S.) imposed substantial tariffs on imports of certain steel and aluminum products from most countries. These were extended to more countries, including Canada, in May 2018, while the U.S. negotiated quantitative trade restrictions with certain other countries. As a result, a significant portion of the steel goods that would have been imported into the U.S. is expected to be shut out of the U.S. and diverted to other markets. In addition, other trading partners, such as the European Union, have imposed safeguards restricting steel imports to protect their steel industry and prevent diversion of steel goods into their market.
Canada is an attractive market for these diverted steel products because, given the close integration of Canada’s steel market with that of the U.S., steel prices in Canada are higher than in other markets worldwide. As a result, this situation raises risks of substantial trade diversion of foreign steel products into Canada. Increases in steel imports have already been causing or are threatening to cause significant injury to Canadian steel producers, seen through various factors such as decreasing sales, production, market shares, and profitability.
Under the World Trade Organization (WTO) Agreement on Safeguards, global safeguard measures may be applied by a WTO member when goods are being imported in such increased quantities, and under such conditions, as to cause or threaten to cause serious injury to domestic producers. In critical circumstances where delay may cause damage that is difficult to repair, provisional safeguard measures may be applied by a WTO member for up to 200 days on the basis of a preliminary determination, pending the results of an investigation.
On August 14, 2018, in light of the circumstances outlined above, the Government of Canada announced it was considering safeguard action to protect Canada’s steel industry. The steel industry is an important sector for the Canadian economy, which directly supports 23 100 middle-class jobs and contributed $4.2 billion to gross domestic product in 2017. The industry serves as a hub for other manufacturing activities and supports upstream and downstream industries that reinforce local and regional economies. There are 10 steelmaking firms in Canada, operating 16 steel mills in 5 provinces. Approximately 75% of Canadian steelmaking capacity is situated in Ontario and another 15% is located in Quebec.
In Canada, the requirements for imposing global safeguard measures are set out in the Customs Tariff. The Customs Tariff allows the Governor in Council to impose provisional safeguard measures on the basis of a report by the Minister of Finance (the Minister), if WTO requirements are met and if there are critical circumstances. If provisional safeguard measures are imposed, the matter must be referred to the Canadian International Trade Tribunal (CITT) for immediate inquiry.
In the case of heavy plates, concrete reinforcing bars (rebar), energy tubular products, hot-rolled sheets, pre-painted steel, stainless steel wire and wire rods, a report of the Minister to the Governor in Council (the Minister’s report) has concluded that these classes of goods are being imported in increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic producers. It has also determined that critical circumstances exist, including the trade restrictive actions recently taken by the U.S. and other steel trading countries that have created the imminent risk of diversion of steel imports into Canada. This would likely cause further serious injury, and delay would cause damage that would be difficult to repair, making the imposition of provisional safeguard measures warranted and necessary.
The Governor in Council has accepted the Minister’s report and its preliminary determination that provisional safeguards are warranted. At the same time, the Order Referring to the Canadian International Trade Tribunal, for Inquiry into and Reporting on, the Matter of the Importation of Certain Steel Goods (CITT Reference Order) refers the matter of the importation of the seven classes of goods subject to provisional safeguards to the CITT for inquiry. The CITT will have to determine whether final safeguard measures may be warranted, and if so, to suggest appropriate remedies to address the injury or threat of injury to domestic producers. The CITT shall report to the Governor in Council on its inquiry in 175 days.
Objectives
- Address the injury to domestic producers caused by import increases of those goods referred to the CITT while the CITT conducts its inquiry.
Description
The Order Imposing a Surtax on the Importation of Certain Steel Goods (Surtax Order) imposes a provisional safeguard measure for 200 days on imports of heavy plates, rebar, energy tubular products, hot-rolled sheets, pre-painted steel, stainless steel wire and wire rods (as described in the Schedule to the Order), entering into force 10 business days after its registration. The Surtax Order applies to imports from all countries except certain free-trade partners (United States, Chile, Israel and certain goods from Mexico) and developing countries.
It takes the form of a 25% surtax that applies to imports of the 7 classes of goods identified, above a total quantity defined for each class in the Schedule to the Order. The quantity corresponds to the average volume of imports into Canada from the countries covered, over a similar period as covered by this Order, in 2015–2016, 2016–2017, and 2017–2018. When applied, the surtax will be calculated on the basis of the value for duty of the imported goods, the value for duty being determined as per the methodology laid out in sections 47 to 55 of the Customs Act, and will apply in addition to any applicable customs duty imposed under the Customs Tariff. The total quantity of imports for each class of goods for the 200-day period is split into 4 segments of 50 days, with any unused quantity in a segment being carried forward into the next segment. The quantity of imports for each class of goods that can be exempt from the surtax is also subject to a maximum quantity per country of origin, which reflects historical trade patterns, as set out in the Schedule. These mechanisms are intended to minimize disruptions in supply and to ensure that imports exempt from the surtax can be available throughout the 200-day period.
The Order Amending the Import Control List amends the Import Control List to add as item 82 the list of steel goods subject to the provisional safeguard measure. Importers are able to apply for shipment-specific import permits that will allow these goods to be exempt from the 25% surtax. Import permits will not be issued once the quantities indicated in the Schedule to the Surtax Order are reached. Goods may continue to be imported after that point, but will be subject to the surtax.
“One-for-One” Rule
The “One-for-One” Rule does not apply to these orders, as there is no change in administrative costs to business.
Small business lens
The small business lens does not apply to these orders, as there are no significant costs to small businesses.
Consultation
On August 14, 2018, the Government published an invitation to submit views on potential safeguard action, including the possibility of provisional safeguards, on seven steel products: steel plates, energy tubular products, rebar, hot-rolled sheets, pre-painted steel, wire rods and stainless steel wire. This consultation ended on August 29, 2018. The final list of products on which provisional safeguards are imposed and those referred to the CITT for inquiry were all covered by this consultation.
During the comment period, over 140 submissions were received, including from steel producers, industry associations, manufacturers and other downstream users, as well as provincial governments and individual citizens. Steel producers expressed support for safeguard measures, while downstream industries generally expressed concerns over supply of certain raw materials and cost impacts that may affect their competitiveness. Certain provincial governments and other submissions have raised regional issues, noting that safeguard measures risk limiting supply of steel goods and raise prices for provinces farther away from Canadian steel mills in Central Canada, given that shipping costs for some products may be prohibitive. All comments have been taken into consideration in determining the appropriate course of action.
Furthermore, the imposition of provisional safeguard measures is concurrent to a safeguard inquiry conducted by the CITT. The CITT inquiry will be conducted in an independent and transparent manner. Interested parties will be invited to participate by providing written submissions and participating in the public hearing during the course of their inquiry.
Rationale
The decision to impose provisional safeguard measures on imports of certain steel goods is based on a report from the Minister of Finance to the Governor in Council, pursuant to section 55 of the Customs Tariff. The Minister’s report includes a comprehensive analysis of the elements required to determine if conditions for a provisional safeguard exists, examining the period from 2015 to the first quarter of 2018, on the basis of publicly available import data and confidential industry submissions. The report analyzes, for each class of goods, the import trends, domestic production figures, indicators of serious injury, imports from certain free-trade agreement (FTA) partners and developing countries, the causal link between imports and injury, and other factors that may have contributed to injury.
For the seven classes of steel goods covered by the Surtax Order, the report has concluded that there is evidence of an increase in imports during a significant part of the period reviewed (from 2015 to the first quarter of 2018), which has caused or is threatening to cause serious injury to the domestic industry producing such goods, shown through different factors such as decreases in production, sales, market shares and profitability. Additionally, the report found that there were critical circumstances, including the trade restrictive actions recently taken by the United States and other steel trading countries that have created an imminent risk of diversion of steel imports into Canada, such that delay in imposing measures would cause further serious injury and damage that would be difficult to repair. Accordingly, the report concludes that the imposition of provisional measures is warranted and necessary.
Imposing provisional safeguard measures on imports of heavy plates, rebar, energy tubular products, hot-rolled sheets, pre-painted steel, stainless steel wire and wire rods directly responds to the injury experienced by domestic producers of those goods in light of increases in imports in recent years, and the threat of further injury from further import increases in current circumstances. The intent behind provisional safeguard measures is to stabilize the market to avoid the situation from deteriorating while allowing for an independent, arms-length investigation by the CITT to take place. As such, an appropriate remedy in this case would be one that does not restrict imports made under the normal course of trade.
The Government has taken the approach of determining a quantity for each of the seven classes of goods, set in the Schedule to the Order, to be imported into Canada without any restrictions. That quantity corresponds to the average volume of imports from the countries covered for a similar 200-day period (as that covered by the provisional safeguard measures) for the past three years. Imports above the quantity set for each class of goods will be subject to a 25% surtax. This ensures that imports consistent with historical trade patterns will continue to enter Canada without the imposition of a surtax. In order to avoid disruptions in supply and to ensure that imports exempt from the surtax can be available throughout the 200-day period, the total quantity is split into four segments of 50 days, with any unused quantity in a segment being carried forward to the next segment.
Consistent with Canada’s international obligations, special consideration was given to certain free trade agreement partners and developing countries. The WTO Agreement on Safeguards and Canada’s free trade agreements require that certain trading partners be accorded preferential treatment when imposing safeguards. This includes a mandatory exclusion for the United States, Mexico, Chile, and Israel, whereby imports from those partners are to be excluded unless they account for a substantial share of total imports, and contribute importantly to the injury or threat of injury.
The Minister’s report has determined that imports from Chile and Israel did not account for a substantial share of total imports for any of the classes of goods covered. Although imports from the U.S. account for a substantial share of total imports for all classes, those imports were determined not to contribute importantly to serious injury or threat of serious injury given Canada’s imposition of a 25% surtax on certain steel imports from the U.S. since July 1, 2018. In the case of Mexico, it was determined that imports of energy tubular products and wire rods account for a substantial share of total imports. Unlike the case of imports from the U.S., imports from Mexico are not subject to trade restrictions that would address their contribution to serious injury, or threat thereof, as a result of their substantial import share. Imports from Mexico for the remaining five product categories were found not to be substantial. Therefore, imports of all classes of steel goods from the United States, Chile, and Israel, as well as heavy plates, rebar, hot-rolled sheets, pre-painted steel and stainless steel wire from Mexico, are excluded from the application of the measure.
Additionally, the WTO Agreement on Safeguards requires that developing countries be excluded from the application of a safeguard measure, unless their share of imports for certain steel goods exceed 3% of total imports (or if such countries with fewer than 3% individually, collectively account for more than 9% of total imports). Under the Customs Tariff, Canada considers developing countries to be those benefiting from the General Preferential Tariff (GPT) and this list of GPT beneficiaries is used for the purposes of excluding developing countries from the application of the provisional safeguard measure. Based on 2017 imports (the most recent year for which data is available) for the seven classes of steel goods listed in the Surtax Order, all developing countries are excluded from the application of the provisional safeguard measure, since none has accounted for a substantial share of imports, except in the case of imports of rebar from Vietnam, which are covered by the measure.
For businesses wishing to import subject steel goods within the quantity set by the Surtax Order (without paying the surtax), there will be incremental costs associated with permit fees of up to $26 per permit, plus customs brokerage fees of around $23 per permit. It is estimated that roughly 2 750 permits could be issued over the 200-day period for a total estimated cost to business of $135,750. The surtax savings to importers will far outweigh the costs associated with requesting import permits. Importers who do not wish to apply for a shipment-specific permit may import these goods without quantitative limits under the General Import Permits, but these imports will be subject to the 25% surtax.
Implementation, enforcement and service standards
The Canadian Border Services Agency (CBSA) is responsible for administering Customs Tariff legislation and regulations, and Global Affairs Canada (GAC) is responsible for issuing import permits for goods on the Import Control List, under the Export and Import Permits Act. In the course of the administration of the Surtax Order, the CBSA and GAC will inform the importing community of issues related to the administration of surtaxes (see CBSA’s Customs Notice and GAC’s Notice to importers).
Contact
Michèle Govier
Senior Director
Trade Rules
International Trade and Finance Branch
Department of Finance
Email: Michele.Govier@canada.ca