Order Amending the Order Imposing a Surtax on the Importation of Certain Steel Goods: SOR/2019-35
Canada Gazette, Part II, Volume 153, Number 4
Registration
SOR/2019-35 January 31, 2019
CUSTOMS TARIFF
P.C. 2019-75 January 31, 2019
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 55(1) and paragraph 56(1)(b) of the Customs Tariff footnote a, makes the annexed Order Amending the Order Imposing a Surtax on the Importation of Certain Steel Goods.
Order Amending the Order Imposing a Surtax on the Importation of Certain Steel Goods
Amendments
1 (1) Subsection 2(1) of the Order Imposing a Surtax on the Importation of Certain Steel Goods footnote 1 is replaced by the following:
Application
2 (1) Subject to subsections (2) to (4), this Order applies to goods that are imported from all countries.
(2) Subsection 2(3) of the Order is replaced by the following:
Exception
(3) This Order does not apply to goods described in classes 1, 2 and 4 to 6 of Schedule 1 being imported from Mexico and originating in that country.
Exception
(3.1) This Order does not apply to goods originating in Canada.
2 Section 3 of the Order is replaced by the following:
Surtax — other than goods originating in Mexico
3 (1) Subject to subsection (2), if all the goods of a class, other than goods originating in Mexico, that is set out in column 1 of Schedule 1, and that is described in column 2, are imported in excess of the following quantity during one of the four consecutive 50-day segments included in the period of 200 days beginning on October 25, 2018 — the first segment beginning on that date — any such 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:
- (a) for goods of classes 1, 2 or 4 to 7, the quantity referred to in column 3 of Schedule 1; and
- (b) for goods of class 3, the quantity calculated in accordance with the formula
(A − B)⁄2
where
- A is the quantity referred to in column 4 of Schedule 1 for class 3; and
- B is the quantity of goods, other than goods originating in Mexico, imported under an import permit issued under the Export and Import Permits Act in respect of item 82 of the Import Control List during the period beginning on October 25, 2018 and ending on the day on which this section comes into force.
Reduction of quantity
(2) For the 50-day segment during which this section comes into force, the quantity referred to in paragraph (1)(a) or the quantity calculated in accordance with the formula set out in paragraph (1)(b), as the case may be, is reduced by the quantity of goods, other than goods originating in Mexico, imported under an import permit issued under the Export and Import Permits Act in respect of item 82 of the Import Control List during the period beginning on the first day of that segment and ending on the day on which this section comes into force.
Unused portion of quantity
(3) For the purposes of this section, any remaining portion of the quantity that is unused at the end of a 50-day segment is carried forward into the next segment.
Permit
(4) For the purposes of subsection (1), the goods are considered to be imported in excess of the quantity referred to in paragraph (1)(a) or the quantity calculated in accordance with the formula set out in paragraph (1)(b), as the case may be, if they are not imported under an import permit that is issued under 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
(5) For the purposes of subsection (1), the goods are considered to be imported in excess of the quantity referred to in paragraph (1)(a) or the quantity calculated in accordance with the formula set out in paragraph (1)(b), as the case may be, if they originate in a country for which importation of the goods of the class in question, during the period of 200 days beginning on October 25, 2018, exceeds the percentage set out in column 5 of Schedule 1 of the following quantity:
- (a) for goods of classes 1 to 6, the quantity referred to in column 4; and
- (b) for goods of class 7, the sum of
- (i) the quantity of goods, other than goods originating in Mexico, imported under an import permit issued under the Export and Import Permits Act in respect of item 82 of the Import Control List during the period beginning on October 25, 2018 and ending on the day on which this section comes into force, and
- (ii) the quantity referred to in paragraph (1)(a) or subsection (2), as the case may be, for the segment during which this section comes into force and any remaining segment.
Surtax — goods originating in Mexico
3.1 (1) If all the goods, originating in Mexico, of a class that is set out in column 1 of Schedule 2, and that is described in column 2, are imported in excess of the quantity referred to in subsection (2) during the period beginning on the day on which this section comes into force and ending at the end of the period of 200 days beginning on October 25, 2018, any such 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.
Reduction of quantity
(2) For the purposes of subsection (1), the quantity is the quantity referred to in column 3 of Schedule 2, after deduction of the quantity of goods originating in Mexico imported under an import permit issued under the Export and Import Permits Act in respect of item 82 of the Import Control List during the period beginning on October 25, 2018 and ending on the day on which this section comes into force.
Permit
(3) For the purposes of subsection (1), the goods are considered to be imported in excess of the quantity referred to in subsection (2) if they are not imported under an import permit that is issued under 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.
3 The schedule to the Order is numbered as Schedule 1.
4 The references after the heading “SCHEDULE” in Schedule 1 to the Order are replaced by the following:
(Subsections 2(3) and 3(1) and (5))
5 The portion of item 3 of Schedule 1 to the Order set out in columns 3 to 5 is replaced by the following:
| Column 1 |
Column 3 |
Column 4 |
Column 5 |
|---|---|---|---|
3. Energy Tubular Products |
N/A |
200,699 |
30% |
6 The portion of item 7 of Schedule 1 to the Order set out in columns 3 to 5 is replaced by the following:
| Column 1 |
Column 3 |
Column 4 |
Column 5 |
|---|---|---|---|
7. Wire Rod |
7,319 |
N/A |
74% |
7 The Order is amended by adding, after Schedule 1, the Schedule 2 set out in the schedule to this Order.
Coming into Force
8 This Order comes into force on February 2, 2019, but if it is registered after that day, it comes into force on the day on which it is registered.
SCHEDULE
(section 7)
SCHEDULE 2
(subsections 3.1(1) and (2))
| Column 1 |
Column 2 |
Column 3 |
|---|---|---|
1. 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:
|
72,820 |
2. 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. The following goods are excluded:
|
16,776 |
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the orders.)
Issues
In recognition of Canada and Mexico’s mutual rights and obligations under the North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO) rules, on January 16, 2019, Canada and Mexico signed a memorandum of understanding (MOU) that ensures that provisional safeguards do not reduce imports originating in Mexico below their recent trend, with allowance for reasonable growth.
In addition, the Government of Canada has become aware of situations where certain steel products of Canadian origin could be subject to provisional safeguards when they are reimported into Canada.
Finally, on January 1, 2019, revisions to certain 10-digit statistical codes applicable to energy tubular tariff products, which are subject to the safeguards, came into effect. Amendments are required to the Import Control List to reflect those revisions.
Background
Global safeguards are trade measures that may be imposed pursuant to the WTO Agreement on Safeguards to address situations where an increase in imports is causing, or threatening to cause, serious injury to domestic producers of like goods.
On October 11, 2018, the Government announced the imposition of provisional safeguards on steel products in seven product categories: heavy plate, concrete reinforcing bar (rebar), energy tubular products, hot-rolled sheets, pre-painted steel, stainless steel wire and wire rod. These measures came into force on October 25, 2018, in the form of tariff-rate quotas under which a 25% surtax is only applied to imports that exceed historical import volumes (see the Order Imposing a Surtax on the Importation of Certain Steel Goods; SOR/2018-206).
The Canadian International Trade Tribunal (CITT) is conducting an arm’s-length and independent inquiry into whether longer-term final safeguards are warranted. If final safeguards are warranted, the CITT will recommend remedies to the Government. The provisional safeguards are intended to stabilize the Canadian steel market from the effects of increased steel imports while the CITT conducts its inquiry. The CITT is scheduled to issue its report and any recommendations by April 3, 2019. The Government’s approach to final safeguards, including any exclusion of free trade partners, will be informed by the CITT’s findings and recommendations.
Consistent with Canada’s international trade obligations, the provisional safeguards apply to goods imported from all sources, unless Canada’s free trade obligations require that a trading partner be excluded.
With respect to imports from Mexico, NAFTA requires that imports from a NAFTA partner be excluded from global safeguard measures unless they account for a substantial share of total imports and they contribute importantly to serious injury or threat thereof. As a result, imports of heavy plate, rebar, hot-rolled sheet, pre-painted steel and stainless steel wire from Mexico are excluded from Canada’s provisional safeguards since imports of those goods from Mexico did not account for a substantial share of total imports between 2015 and the first quarter of 2018 (i.e. the period examined to determine if the conditions for imposing provisional safeguards exist).
In the case of energy tubular products and wire rod, imports from Mexico accounted for a substantial share of total imports and have preliminarily been determined to contribute importantly to serious injury or threat thereof. Therefore, an exclusion from provisional safeguards was not considered appropriate given that the conditions for such exclusions have not been met.
The Government recognizes the NAFTA provisions that a global safeguard measure applied to a NAFTA partner should not have the effect of reducing imports below the recent trend of imports from that country, with allowance for reasonable growth. Following the imposition of provisional safeguards, the Government of Canada held consultations with the Government of Mexico with a view to ensuring that Canada’s provisional safeguards are consistent with its rights and obligations under NAFTA and WTO rules with respect to the imposition of global safeguards.
On January 16, 2019, Canada and Mexico signed a MOU that provides, inter alia, for an exclusive 200-day surtax-free quota of 72 820 tonnes for energy tubular products and 16 776 tonnes for wire rod originating in Mexico. These quota amounts reflect the historical volume of energy tubular products and wire rod originating in Mexico plus an allowance for reasonable growth in light of import trends for each product.
With respect to steel goods of Canadian origin, no exception from provisional safeguards was provided at the time provisional safeguards were imposed as it was considered unlikely that Canadian-originating goods would be reimported into Canada. Since then, the Government has become aware of situations where Canadian-originating goods may be exported for warehousing and distribution, or minor processing that does not change the origin of the goods. When these goods are reimported for sale in Canada, they are subject to the provisional safeguards since no exception applies. This outcome is inconsistent with the policy objectives of the provisional safeguards, which are to protect the Canadian steel industry from an injurious surge in imports, and could lead to the unnecessary utilization of the surtax-free provisional safeguard quota.
Lastly, the surtax-free quota portion of the provisional safeguards is administered by Global Affairs Canada by way of shipment-specific import permits issued under item 82 of the Import Control List. The steel goods under item 82 were added to the Import Control List according to their 10-digit statistical codes (see the Order Amending the Import Control List; SOR/2018-207). The Harmonized Commodity Description and Coding System (HS) is the standard coding structure used in international trade. As such, it forms the basis of tariff classifications set out in the Customs Tariff. However, HS numbers are only harmonized internationally up to the 6-digit level and each country may amend the statistical suffixes (i.e. 10-digit level) as needed for import monitoring purposes.
On January 1, 2019, Statistics Canada revised certain 10-digit statistical codes applicable to energy tubular products at the request of domestic producers, in order to better collect import data concerning those goods. These changes were submitted to the Canada Border Services Agency for publication as an administrative note to the schedule to the Customs Tariff. Shipment-specific import permits for the applicable energy tubular products are being issued on an interim basis administratively, but the Import Control List tariff items for energy tubular products no longer align with the statistical codes in the schedule to the Customs Tariff and this may cause confusion for importers. In order to ensure ease of use for importers applying for a shipment-specific import permit, the Import Control List must be amended to reflect the schedule to the Customs Tariff.
Objectives
- Implement Canada’s commitment in its MOU with Mexico and ensure that provisional safeguards imposed on imports originating in Mexico are consistent with Canada’s rights and obligations under NAFTA and WTO rules;
- Explicitly exclude Canadian-originating goods from provisional safeguards and ensure that provisional safeguards align with the policy objective of protecting domestic producers from an injurious surge in imports while minimizing unintended consequences; and
- Ensure concordance of the statistical codes in Canada’s Customs Tariff schedule and in the Import Control List.
Description
Order Amending the Order Imposing a Surtax on the Importation of Certain Steel Goods (the Surtax Order)
The Surtax Order amends the Order Imposing a Surtax on the Importation of Certain Steel Goods in the following manner:
- Imports of energy tubular products and wire rod originating in Mexico
- Establishes exclusive 200-day surtax-free quotas for energy tubular products and wire rod of 72 820 tonnes and 16 776 tonnes, respectively, for imports originating in Mexico;
- Removes the breakdown of the 200-day quotas into 50-day segments for imports originating in Mexico;
- Adjusts the 50-day and 200-day quotas for energy tubular products and wire rod from non-Mexico sources by deducting Mexico’s share of the original quota based on historical import volumes;
- For energy tubular products, given that the import share of non-Mexico goods has been below the historical share of imports during the provisional safeguard period, the 50-day quota for future periods has been increased in order to ensure that the 200-day quota available to imports of energy tubular products from non-Mexico sources is not reduced below 200 699 tonnes, in line with historical levels,
- For wire rod, there is no increase of the 50-day quota after deducting Mexico’s share of the original quota. However, given that the volume of wire rod imported from non-Mexico sources during the provisional safeguard period has been higher than historical levels, the 200-day quota is increased in order to ensure that the 50-day quota for subsequent quota periods is not reduced below historical levels (i.e. total 200-day quota is equal to the sum of revised quota volumes for each subsequent quota period and the volume of goods imported when the Surtax Order comes into force);
- Adjusts the percentage of the quota for non-Mexico imports that may be filled by imports originating in a single country to reflect the removal of imports from Mexico from the 200-day quota.
- Canadian-originating goods
- Adds an exception for goods originating in Canada from the application of provisional safeguards.
Mexico Steel Goods Remission Order (the Remission Order)
The Remission Order remits the 25% surtax paid on imports of energy tubular products and wire rod originating in Mexico before the Remission Order came into force. Remission is granted on the condition that the importer presents a valid shipment-specific import permit at the time a claim is made to the Canada Border Services Agency (CBSA). This condition ensures that the volume of goods for which remission is granted is properly counted in the quota for surtax-free importations originating in Mexico.
Order Amending the Import Control List (the Import Control List Order)
The Import Control List Order amends item 82 (Steel Goods) of the Import Control List to reflect the current statistical codes used in Canada’s Customs Tariff schedule, which became effective on January 1, 2019.
Regulatory development
Consultations
The amendments to the provisional safeguard through the Surtax Order and the Remission Order implement the mutually agreed upon outcomes of consultations held between Canada and Mexico, following the imposition of provisional safeguards on October 25, 2018.
Broader consultations were not undertaken as the Surtax and Remission Orders do not fundamentally change the nature or effectiveness of the provisional safeguards. In particular, the amendments are implemented in a manner that does not reduce the quota available for imports originating from non-Mexico sources below historical levels.
The amendments made through the Surtax Order, in respect of Canadian-originating steel goods, and the Import Control List Order are technical in nature. As a result, consultations were not considered necessary.
Modern treaty obligations and Indigenous engagement and consultations
Constitutional and modern treaty implications were considered and none have been identified.
Instrument choice
No other instrument is suitable because all elements needed to achieve the stated objectives require a regulatory framework, approved by the Governor in Council.
Regulatory analysis
Costs and benefits
The establishment of exclusive surtax-free quotas for imports of energy tubular products and wire rod originating in Mexico properly recognizes Canada and Mexico’s mutual rights and obligations under NAFTA and WTO rules. In doing so, the Surtax and Remission orders align with Canada’s strong support for a rules-based trading system and robust bilateral trade relationship with Mexico.
As well, the Surtax Order implements the Canada-Mexico MOU in a manner that maintains the broad objectives of the provisional safeguards (i.e. to protect the Canadian steel industry from an injurious surge in imports), while minimizing trade disruptions for other Canadian businesses and trading partners.
The amendments in respect of Canadian-originating goods through the Surtax Order will benefit Canadian steel producers and importers by preventing Canadian goods from inadvertently being subject to provisional safeguards upon reimportation and unnecessarily utilizing the available surtax-free quotas.
The Import Control List Order will also benefit Canadian importers by providing clarity and certainty when applying for shipment-specific import permits for energy tubular steel goods through ensuring concordance of the statistical codes in the schedule to the Customs Tariff and those in the Import Control List.
Small business lens
No costs are imposed on small businesses resulting from the Surtax, Remission or Import Control List orders.
“One-for-One” Rule
The “One-for-One” Rule does not apply to the Surtax and Control List orders, since they do not result in any change in administrative burden for Canadian businesses. In particular, businesses seeking to import goods subject to provisional safeguards on a surtax-free basis are already required to obtain shipment-specific import permits from Global Affairs Canada. The Surtax and Control List orders do not result in any change to the permit requirements in respect of energy tubular products and wire rod imports, regardless of the country of origin.
With respect to the Remission Order, the “One-for-One” Rule applies since there is an administrative burden associated with applying for remission of surtaxes that have been paid. However, the Order is exempted from the “One-for-One” Rule as it is related to tax and tax administration.
The administrative costs for Canadian businesses claiming remission are expected to be minor as the Government is only aware of a limited number of importers who are eligible for remission. In order to claim remission, businesses are required to submit forms to the CBSA requesting refunds of surtaxes paid, accompanied by supporting documentation and a shipment-specific import permit obtained from Global Affairs Canada. Since businesses seeking to import goods surtax-free are already required to obtain shipment-specific import permits, any incremental administrative burden is expected to be minimal.
Regulatory cooperation and alignment
None of the orders are related to a work plan or commitment under a formal regulatory cooperation forum.
Strategic environmental assessment
In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that the orders would not have positive or negative effects on the environment; therefore, a strategic environmental assessment is not required.
Gender-based analysis plus (GBA+)
No GBA+ impacts have been identified for the orders.
Implementation, compliance and enforcement, and service standards
All three orders will be administered by the Canada Border Services Agency and Global Affairs Canada as part of their responsibilities for administering the provisional safeguards imposed on October 25, 2018.
The Canada Border Services Agency and Global Affairs Canada will revise their public notices to inform importers of the change resulting from the three orders. In addition, the importers who are known to be implicated in the issues the orders are intended to address may be contacted directly.
Contacts
Alan Ho
International Trade Policy Division
Department of Finance Canada
Ottawa, Ontario
K1A 0G5
Telephone: 613-369-4022
Gregory Cederwall
Trade and Export Controls Bureau
Global Affairs Canada
Ottawa, Ontario
K1A 0G2
Telephone: 343-203-4359