Order Amending the China Surtax Order (2024): SOR/2024-202

Canada Gazette, Part II, Volume 158, Number 22

Registration
SOR/2024-202 October 11, 2024

CUSTOMS TARIFF

P.C. 2024-1109 October 11, 2024

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance and the Minister of Foreign Affairs, makes the annexed Order Amending the China Surtax Order (2024) under subsection 53(2)footnote a and paragraph 79(a)footnote b of the Customs Tariff footnote c.

Order Amending the China Surtax Order (2024)

Amendments

1 Sections 2 and 3 of the China Surtax Order (2024) footnote 1 are replaced by the following:

Non-application — goods in transit

2 This Order does not apply to goods that originate in China that

Surtax — tariff items set out in Schedule 1

3 Goods that originate in China that are classified under any of the tariff items set out in Schedule 1 are subject to a surtax in the amount of 100% of the value for duty determined in accordance with sections 47 to 55 of the Customs Act.

Surtax — tariff items set out in Schedule 2

3.1 Goods that originate in China that are classified under any of the tariff items set out in Schedule 2 are subject to a surtax in the amount of 25% of the value for duty determined in accordance with sections 47 to 55 of the Customs Act.

2 The schedule to the Order is amended by replacing the reference after the heading “SCHEDULE” with the following:

(Paragraph 2(a) and section 3)

3 The schedule to the Order is renumbered as Schedule 1.

4 The Order is amended by adding, after Schedule 1, the Schedule 2 set out in the schedule to this Order.

Coming into Force

5 This Order comes into force on October 22, 2024, but if it is registered after that day, it comes into force on the day on which it is registered.

SCHEDULE

(Section 4)

SCHEDULE 2

(Paragraph 2(b) and section 3.1)

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

The acts, policies and practices of the Government of China in the steel and aluminum sectors are having adverse effects on Canada’s trade in goods. If left unchecked, China’s non-market acts, policies and practices for its steel and aluminum sectors could lead to an exponential surge of imports that could adversely affect domestic production and planned investments in Canada’s steel and aluminum industries.

Background

Steel and aluminum and their associated supply chains represent strategic sectors in support of Canada’s clean future. Steel and aluminum serve as critical inputs in a variety of downstream industries, such as automotive production, including electric vehicles, and in the transportation, construction, renewable energy, packaging and electrical/electronic sectors.

Canada, like-minded trading partners and the Organisation for Economic Co-operation and Development (OECD) have long noted concerns about Chinese structural overcapacity in steel and aluminum and the associated impacts on global trade. China is the world’s largest steelmaker, producing over one billion metric tonnes in 2023 (i.e. 54% of global production). Despite softening global demand, China has increased its capacity by 18.6 million metric tonnes (more than Canada’s total production capacity) since 2018. Similarly, China’s primary aluminum capacity has grown from 11% of global production to 59% over the last two decades, with the Chinese government providing support of up to $70 billion between 2013 and 2017 alone, according to the OECD.

The pervasive subsidization and other non-market policies and practices by the Chinese government in these sectors, often utilizing higher carbon production technology, have contributed to persistent, non-market structural overcapacity, affecting the profitability and long-term economic viability of market-oriented Canadian firms.

China’s non-market policies and practices include, but are not limited to, pervasive subsidization, insufficient or non-existent labour and environmental standards, and other measures to artificially lower production costs. As a result, China is exporting steel and aluminum at unfairly low prices, distorting global trade. There has already been an increase in imports of steel and aluminum made in China into the Canadian market, from $1.1 billion in 2019 to almost $2.3 billion in 2023.

On August 26, 2024, the Government published a Notice of Intent to impose a 25% surtax on Chinese-produced steel and aluminum to defend Canadian workers and investments in these sectors from China’s unfair trade policies.

Section 53 of the Customs Tariff provides for the ability to apply trade measures (including surtaxes) to respond to acts, policies or practices of other countries’ governments that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.

Canada found evidence of significant and diverse acts, policies and practices from both central and regional levels of the Chinese government that support steel and aluminum manufacturing and the production of key inputs. These include

These unfair Chinese practices benefit Chinese-made steel and aluminum by enabling them to be produced at artificially lower prices, leading to significant overcapacity.

As trade-oriented industries, Canadian steel and aluminum producers continue to face challenges resulting from Chinese overcapacity. This overcapacity has led to volatile market conditions and created significant challenges for Canadian producers. China’s steel exports have risen to an eight-year high, with the first seven months of this year seeing a 21.8% increase in steel exports over the same period last year, saturating global markets. This means Canadian producers of like products are forced to compete with unfairly advantaged Chinese-made steel and aluminum that put unwarranted downward pressure on pricing, challenging the profitability of Canadian producers. In the case of aluminum, for a number of years, there have been mounting concerns among like-minded countries that the rapid expansion of China’s capacities up and down the aluminum value chain has contributed to global excess capacity and depressed prices for aluminum products. This price decline corresponded to a marked fall in the profitability of aluminum-producing firms, which pushed some companies to close down smelters in Europe and North America.

Imports of Chinese-made steel and aluminum also undermine investments in these sectors, including devaluing existing investments and deterring future investments. Therefore, they lead, directly or indirectly, to adverse effects on the trade in steel and aluminum of Canada. Like-minded trading partners, including Canada–United States–Mexico Agreement (CUSMA) partners, have identified similar concerns with Chinese policies and practices and the resulting overcapacity in the steel and aluminum sectors. Most notably, on September 13, 2024, the United States (U.S.) confirmed an increase in its tariffs under section 301 of the U.S. Trade Act of 1974 on a range of products imported from China, including tariffs of 25% on steel and aluminum to be implemented as of September 27, 2024. On April 22, 2024, Mexico announced an increase in its tariffs on a range of products, including steel and aluminum, to provide fair market conditions for sectors of the domestic industry facing vulnerability due to practices that disrupt and affect international trade. In order to ensure greater transparency in supply chains, Mexico will also require importers to provide country-of-origin information for steel products entering Mexico’s market.

In June 2024, G7 Leaders committed to “acting together to promote economic resilience, confront non-market policies and practices that undermine the level playing field and our economic security, and strengthen our coordination to address global overcapacity challenges.”


Objective

A surtax will respond to the acts, policies and practices of the Government of China that adversely affect, or lead directly or indirectly to adverse effects on, the trade in goods of Canada. It will help level the playing field for Canadian steel and aluminum workers and allow Canada’s steel and aluminum industries to compete by limiting imports into Canada of unfairly traded Chinese-produced steel and aluminum. A surtax also preserves deeply integrated North American supply chains by aligning with similar actions by CUSMA partners, and protects against a potential surge of steel and aluminum imports from China resulting from action taken by other jurisdictions.

Description

The Order Amending the China Surtax Order (2024) [the Order] amends the China Surtax Order (2024), which was registered on September 20, 2024.

The Order imposes an additional surtax of 25% on steel and aluminum produced in China and imported into Canada, effective October 22, 2024. This surtax applies in addition to other applicable duties, including anti-dumping or countervailing duties. The Government intends to review this measure within a period of one year from its entry into force.

Regulatory development

Consultation

A comment period was held between August 26 and September 20, 2024, following the issuance of a Notice of Intent on August 26. The Notice of Intent, posted on the Department of Finance’s website, sought views on the potential scope of aluminum and steel products to which a surtax under section 53 of the Customs Tariff will be applied in response to unfair Chinese trade practices.

The Government received more than 180 submissions, including from industry and labour associations, non-governmental organizations, businesses, provinces and individuals. Stakeholders in the aluminum and steel industry were highly supportive of a surtax and highlighted the importance of aligning with the U.S. They indicated that Chinese producers that benefit from unfair, non-market acts, policies and practices are undermining production and jeopardizing investments for producers around the world, including in Canada, thereby threatening workers and businesses, as well as Canada’s long-term economic security. Other stakeholders raised concerns that the surtax would increase the cost and/or reduce the availability of the goods they import. Some stakeholders requested expanding the scope to cover other goods related to the steel and aluminum supply chain, including certain finished products. Others raised concerns over potential negative impacts on the cost of inputs and requested certain products be excluded.

Modern treaty obligations and Indigenous engagement and consultation

Following the completion of the assessment of modern treaty implications, no adverse impacts on potential or established Indigenous or treaty rights, which are recognized and affirmed in section 35 of the Constitution Act, 1982, were identified in the Order.

Instrument choice

Subsection 53(2) of the Customs Tariff provides the authority for the Governor in Council, on the recommendation of the Minister of Finance and the Minister of Foreign Affairs, to, by order, make goods that originate in any country subject to a surtax for the purpose of responding to acts, policies or practices of the government of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.

Other instruments were considered but were not found suitable to address the broad range of pervasive Chinese non-market policies and practices and the resulting global trade distortions in a timely manner.

Regulatory analysis

Benefits and costs

Benefits

The surtax will help level the playing field for Canadian steel and aluminum producers and workers and thereby support the competitiveness of Canada’s steel and aluminum industries by limiting imports into Canada of unfairly traded Chinese-produced steel and aluminum.

Costs

The surtax increases the cost of Chinese steel and aluminum imports. Consequently, importers may source these products from other markets in the long term or continue sourcing them from the Chinese market, but pass the incremental importation costs, in whole or in part, onto their Canadian clients, including downstream manufacturers that use steel or aluminum as inputs or consumers of finished products.

Consumer impacts are expected to be greater as supply chains adjust to the new trade environment. In the short term, importers may pass the surtax to domestic consumers who may then choose to seek local or imported alternatives, which could result in higher prices (consumer costs) of steel and aluminum products. Increased costs could initially approach the full value of the surtax applied to imports (e.g. 25%) depending on how much of the total cost of the finished good the aluminum or steel input represents, as well as the degree to which these costs are passed along to consumers or borne by producers. However, in the long term, this is likely to decrease as steel and aluminum are sourced from other places that are not subject to a surtax.

The scope and nature of impacts will depend on many variables, including the overall demand for steel and aluminum and the availability of products produced by alternate sources, including in Canada, and the extent to which importers absorb the cost of the surtaxes.

Small business lens

Analysis under the small business lens determined that the measure would not impose administrative or compliance requirements on Canadian small businesses. Taxes are not included in the definitions of administrative and compliance burden in the Policy on Limiting Regulatory Burden on Business.

One-for-one rule

The one-for-one rule does not apply, as there is no incremental change in the administrative burden on businesses. Taxes do not meet the definition of administrative burden in the Red Tape Reduction Act and are not subject to the offset requirement under the rule.

Regulatory cooperation and alignment

As noted above, Canada’s like-minded trading partners have identified similar concerns and are taking steps to protect their markets.

In 2019, Canada and the U.S. issued a joint statement in which they agreed to lift the U.S. section 232 duties on imports of Canadian aluminum and steel and Canada’s retaliatory measures. In this joint statement, the two countries agreed to “implement effective measures to:

On May 14, 2024, the U.S. announced an increase in section 301 tariffs applicable to steel and aluminum imported from China to 25%, among a range of other strategic sectors. On September 13, 2024, the U.S. announced the final list of steel and aluminum products covered, which are subject to 25% tariffs, effective September 27, 2024.

Effects on the environment

Limiting steel and aluminum imports from China, which are among the most carbon-intensive in the world, is expected to have positive environmental impacts, as these steel and aluminum imports are expected to be replaced by domestic and other foreign sources that are less carbon-intensive. The average CO2 emissions intensity for steel production (PDF) in China is about 1.9 tons of CO2 per ton produced versus approximately 1.2 tons in Canada. The average CO2 emissions intensity for aluminum production (PDF) in China is about 12.5 tons of CO2 per ton produced versus approximately 2 tons in Canada. Chinese steel has also been estimated to have a carbon intensity of more than double that of the U.S. or Mexico, while Chinese aluminum production is among the most carbon-intensive in the world. The ultimate impact will depend on the degree to which the surtax alters trade patterns and the relative carbon intensity of alternative sources.

Gender-based analysis plus

No impacts based on gender and other identity factors have been identified for this measure, as steel and aluminum from other sources will continue to be available.

Implementation, compliance and enforcement, and service standards

This Order will come into force on October 22, 2024. Consistent with similar previous measures, goods that are in transit to Canada on October 22, 2024, will be exempted from the surtax.

The Order will be implemented by the Canada Border Services Agency (CBSA), as the administrator of the Customs Tariff. The CBSA will notify clients of the new surtax through a Customs Notice and bulletins through their Technical Commercial Client Unit.

Contact

Scott Winter
Senior Director
Trade Rules
International Trade Policy Division
Department of Finance
Ottawa, Ontario
K1A 0G5
Email: tariff-tarif@fin.gc.ca