Tax Insights: Safeguards on steel imports - What Canadian users and importers of foreign steel into Canada should consider

October 15, 2018

 

Issue 2018-37

In brief

On October 11, 2018, the Department of Finance announced that, effective October 25, 2018, the Order Imposing a Surtax on the Importation of Certain Steel Goods (the Order)1 will impose a 25% provisional safeguard surtax on certain steel products imported into Canada in excess amounts.

The safeguard surtax is intended to prevent an increase of certain imported steel products from being imported into Canada in excess quantities, which would damage Canadian steel producers. The concern is that shipments of steel, originally bound for the United States and captured by the 25% US tariff on foreign steel, are being diverted into Canada in large quantities.

In detail

Background

The United States started imposing tariffs on imports of certain steel and aluminum products; these tariffs began June 1, 2018 for imports from Canada. In retaliation, Canada imposed a retaliatory surtax on certain imported US-origin goods beginning July 1, 2018. For more information, see our Tax Insights “Canada imposes import surtax on certain US-origin goods starting July 1, 2018” at www.pwc.com/ca/taxinsights.

The US punitive tariffs on foreign steel has resulted in a greater quantity of imported foreign steel into Canada. In situations where these products are being imported into Canada in increased quantities, and causing or threatening serious injury to Canadian domestic steel producers, the Canadian government can implement safeguards, in the form of a surtax, to be imposed on these potentially damaging imports into Canada.

The affected steel products

The Order will impose a 25% provisional safeguard surtax on the following seven classes of steel products2 that exceed a specified quantity threshold (the tariff rate quota [TRQ]) when imported into Canada:

  • heavy plate
  • concrete reinforcing bar (rebar)
  • energy tubular products
  • hot-rolled sheet
  • pre-painted steel
  • stainless steel wire
  • wire rod

The surtax will apply to all shipments after October 24, 2018, whether or not the shipment is currently in transit, and includes shipments released from a Customs Bonded Warehouse or Sufferance Warehouse after October 24, 2018.

The surtax will be in place for 200 days, while Canada waits for the Canadian International Trade Tribunal’s findings on whether longer-lasting safeguards are necessary and if so, their recommended remedies.

The Order applies to the covered steel goods imported from all countries except for goods originating in and imported from:

  • the United States, Chile, and Israel or other beneficiaries of the Canada-Israel Free Trade Agreement
  • Mexico with two exceptions (energy tubular products and wire rods are not exempt)
  • countries that are beneficiaries of the General Preferential Tariff with one exception (concrete reinforcing bars originating in and imported from Vietnam are not exempt)

The burden of proof that the goods do, or do not, originate in a specific country lies with the importer.

The safeguard surtax is based on product definitions and not on tariff classification numbers that may also be listed in the Order or in other information relating to the application of the Order. Importers should refer to the Order when it becomes available, to determine whether goods are captured by the Order.

The TRQ and import permits

The Commodity Codes Handbook3 sets out the goods covered by each TRQ. The TRQs will be administered in four consecutive 50-day periods:

  • October 25 to December 13, 2018
  • December 14, 2018 to February 1, 2019
  • February 2 to March 23, 2019
  • March 24 to May 12, 2019

The Notice to Importers “Item 82 – Steel Goods”4 released by Global Affairs Canada, specifies the quantity of goods that may be imported under each TRQ in each 50-day period; unused quantities will roll forward to the next 50-day period.

In addition to these general quantity limits, percentage caps of TRQs are imposed for imports originating in any one country. Once the country-specific TRQ percentage is reached, import permits will no longer be issued for imports originating from that country for the remainder of the 200-day provisional safeguard period.

The seven classes of steel products will be added to the Import Control List, and Global Affairs Canada will be responsible for issuing import permits. The TRQs will be administered by way of shipment-specific import permits issued on a first-come, first-served basis. These permits are only valid for 14 calendar days, but may be extended in exceptional circumstances, and will normally not be issued retroactively.

The application period for shipment-specific import permits will open on October 25, 2018, and importers may apply for a shipment-specific import permit up to 5 days in advance of a shipment’s arrival.

According to the Export and Import Permits Act, only a resident of Canada may apply for an import permit. Non-resident importers may need to review their options before October 25, 2018.

Surtax operational import considerations

Historically, an import permit was required to import steel into Canada. This permit requirement was abolished many years ago, but has now been reinstated. Importers will not pay surtax on goods that are subject to the safeguard surtax if they have a specific import permit, because the goods are imported within the parameters of the TRQ. Importers will only pay the surtax on goods that are subject to the surtax if they do not have an import permit.

The Global Affairs Canada website will publish utilization tables so that importers will be able to track the fillrates for the various TRQs within each period, along with their country-specific caps.

In addition, Canada’s Duties Relief Program and Duty Drawback Program will continue to be available to importers for duties relief, including refunds of safeguard surtaxes, duties paid or owed by businesses that meet the criteria for these programs. This will mainly apply to steel products that are subject to the safeguard surtax on importation into Canada, and then subsequently exported from Canada.

How PwC can help

We can help you:

  • understand what this new development means for your business
  • develop compliance, refund and savings strategies
  • meet the requirements for documenting the origin of the imported product
  • establish business residence in Canada

 

1  At the date of publication, the Order has not been published.
2  For detailed product descriptions of the goods covered in the Order, see “Backgrounder – Support for Canadian Steel Producers Through Provisional Safeguards on Certain Steel Imports,” Department of Finance (October 11, 2018) at www.fin.gc.ca/n18/data/18-090_2-eng.asp
3  “Handbook of Export and Import Commodity Codes,” Global Affairs Canada at www.international.gc.ca/controls-controles/report-rapports/list_liste/handbook-manuel/content_c_contenu.aspx?lang=eng
Notice to Importers “Item 82 – Steel Goods,” Global Affairs Canada (October 11, 2018) at www.international.gc.ca/controls-controles/steel-acier/notices-avis/911.aspx?lang=eng. The notice informs importers of procedures that will govern the administration of provisional safeguards for steel goods listed in item 82 on the Import Control List.

 

 

 

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