On July 1, 2018, Canada began imposing retaliatory tariffs (“surtaxes”) on imports of certain steel and aluminum products and a wide variety of other goods from the U.S. Those surtaxes target some $16.6 billion of U.S. imports. The Government of Canada has now announced an exclusion request process that allows businesses registered in Canada to request exclusions from these surtaxes.
The Government of Canada has stated it will only consider remission requests that address:
- Short supply in the domestic market, either on a national or regional basis;
- Contractual requirements for Canadian businesses to use U.S. steel or aluminum in their products or projects that were in place prior to May 31, 2018; or
- On a case-by-case basis, other exceptional circumstances that could have severe adverse impacts on Canada’s economy.
Surtax exclusions will be implemented by way of surtax remission orders that will relieve importers from paying the surtax on future imports and may refund any surtax already paid. It is expected that exclusions will only be granted in exceptional circumstances that outweigh the policy rationale behind the imposition of the surtaxes.
Even though the exclusion process is only open to companies registered in Canada, U.S. companies can work with their Canadian customers or distributers to have an exclusion application filed. The Canadian government is setting a high bar for exclusion requests, and is requiring that all applications set out a detailed business case for granting the application. The information required includes the volume and value of imports, efforts to find alternative sources, costing, pricing, the impact of an exclusion on Canadian industry and the applicant’s competitors, and many other factors.
Exclusion requests will be reviewed by an inter-departmental committee for consideration, and that committee may consult with other interested parties, including domestic producers, before issuing a recommendation to the Minister of Finance. The Minister of Finance can then recommend exclusion to Cabinet. If Cabinet approves, the exclusion would take effect through an Order in Council granting remission under section 115 of the Customs Tariff. Unlike the US exclusion process, there is no timeline imposed on the Canadian government to respond to any exclusion request.
Nevertheless, the exclusion process is a lifeline to Canadian companies that have been seriously impacted by the Canadian surtaxes, and provides some hope that relief may be available. If an exclusion request is granted, it could be made retroactive, resulting in a refund of surtax paid since July 1, 2018.
Because the bar is high, it will be critical for applicants to submit a properly documented application that makes a convincing case for exclusion.