US Tariff update - March 27
As Canadian companies will be aware, the Government of Canada is responding to new tariffs set to be imposed on Canadian exports of automobiles and automobile parts, which would take affect on April 3.
A link to the full announcement of the Executive Order is available here.
The actions announced by the US government are substantial.
It is also quite clear that they directly contradict commitments made under the Canada, United States, Mexico Agreement (CUSMA). - also known as USMCA.
Under that agreement, Canada and the United States agreed to various side letters which clarify specific aspects of the agreement.
One such side letter between Canada and the United States rules out section 232 tariffs for automobiles and auto parts (Section 232 is the mechanism the US administration has chosen to implement these tariffs).
Letter from the U.S./Letter from Canada (Section 232 Tariffs – Future Measures)
As a result, not only do the tariffs jeopardize Canadian automobile manufacturing, they also for the first time represent a fundamental breach of our free trade agreement with the United States.
In the next few days, we will need to understand what impact this will have.
Obviously, as this happens in the middle of a Canadian election, there is an extra political dimension.
In addition, we encourage companies that manufacture in Canada and export to the United States under the provisions of CUSMA/USMCA to note the following.
In the Executive Order, the US government has set up a model which it may pursue in other product areas. The US is proposing a mechanism where tariff rates on Canadian goods exported to the United States (which qualify for CUSMA) would be scalable based on the amount of US content they contain.
They might try to apply this same approach to other product categories including textiles and apparel.
Excerpt:
(2) For automobiles that qualify for preferential tariff treatment under the USMCA, importers of such automobiles may submit documentation to the Secretary identifying the amount of U.S. content in each model imported into the United States. “U.S. content” refers to the value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States. Thereafter, the Secretary may approve imports of such automobiles to be eligible to apply the ad valorem tariff of 25 percent in clause (1) of this proclamation exclusively to the value of the non-U.S. content of the automobile. The non-U.S. content of the automobile shall be calculated by subtracting the value of the U.S. content in an automobile from the total value of the automobile.
CAF Contact:
Bob Kirke, Executive Directot
bkirke@apparel.ca