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Canada and Mexico React to U.S. Steel/Aluminium Tariffs, Take Action to Protect Domestic Steel Sectors

Canada and Mexico have taken a number of actions in recent weeks to both protect their respective domestic steel sectors and retaliate against the United States for its recent decision to rescind the exemptions it temporarily provided to these two countries from its steel and aluminium safeguard tariffs. The decision to move forward with retaliatory measures against a range of key U.S. products has raised tensions between historical allies to new heights, especially between the United States and Canada, further increasing the likelihood of a global trade war and potentially dimming prospects for a successful outcome to the NAFTA modernisation talks.

Mexico has suspended duty-free treatment under NAFTA and imposed duties ranging from seven percent to 25 percent on an array of U.S. products, effective from 5 June. The countermeasures affect a total of 71 tariff lines, including such products as flat steel (hot and cold foil, including coated and various tubes), lamps, pork legs and shoulders, sausages and food preparations, apples, grapes, blueberries and various cheeses, among others.

Concurrently, Mexico has increased its duties on a range of iron and steel products (classified under 186 separate tariff lines within HS Chapters 72 and 73) on a most-favoured nation basis, which means that imports of subject merchandise from all sources – including Hong Kong and mainland China – will face the higher (15 percent) duties. While imports of these products had benefited from duty-free treatment in recent weeks, 97 of these tariff lines had previously faced temporary duties also of 15 percent. The duty increase will be in place at least through 31 January 2019.

Finally, Mexico has requested WTO consultations with the United States over the U.S. safeguard duties on certain imported steel and aluminium products. If the parties are unable to resolve the dispute through consultations after 60 days, Mexico may request the establishment of a dispute settlement panel.

For its part, Canada has announced its intention to impose effective from 1 July an additional duty of 10 percent or 25 percent on C$16.6 billion (about US$12.8 billion) worth of U.S. products. Products under consideration for these measures include various food and agricultural products such as cucumbers, yoghourt, roasted coffee, maple sugar and syrup, strawberry jam, chocolate, orange juice, mustard, and tomato ketchup and other tomato sauces, steel and aluminium products, whiskies, cosmetic and personal care products, dishwashing detergents, candles, plastic tableware and kitchenware, plywood, insecticides, handkerchiefs and toilet paper, mattresses and other bedding articles, playing cards, pens and markers, refrigerator-freezers, washing machines, water heaters and boats.

Additionally, Canada has aligned its country of origin marking regime for steel and aluminium products with that of the United States. According to Canadian authorities, these regulatory changes expand the scope of steel and aluminium products that need to be marked with their country of origin and amend the criteria used to determine the country of origin for marked goods. The Canadian government believes that aligning with U.S. requirements will help support effective customs enforcement by ensuring more consistent and predictable treatment of these goods by Canadian and U.S. authorities.

Better aligning the Canadian marking regime with that of the United States builds on new funding of more than C$30 million over five years, starting immediately, as well as C$6.8 million per year thereafter to hire 40 new officers to investigate trade-related complaints, including those related to steel and aluminium, and to improve the accuracy and timeliness of published steel import data. This is in addition to recent regulatory changes that allow the Canada Border Services Agency to identify and stop companies that try to avoid duties and that give the CBSA greater flexibility in responding to situations where prices charged in the exporter's domestic market are distorted.

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