Customs rebates protect Canada’s vehicle industry
• Drawback schemes expected to soften blow of US steel tariffs
Canadian government customs provisions are expected to soften the blow on the country’s automotive industry from retaliatory tariffs on US steel, according to trade lawyers and industry leaders bracing for higher costs.
Decades-old programmes reduce or refund import duties on supplies like steel when companies in Canada can show the material is used in export products. They could protect the motor vehicle industry’s supply contracts covering raw materials and parts, which often cross borders several times before a vehicle is finished.
While imposing tariffs against a long list of US products in July, Canada clarified that “duties relief” and “duty drawback” programmes would be available to Canadian exporters.
“That provision in the notice is overwhelmingly directed at the auto industry,” said Jesse Goldman, a trade lawyer at Borden Ladner Gervais. Without drawbacks, Goldman said, the Canadian retaliation would have “very significantly and very quickly“hurt the industry.
Some 85% of vehicles built in Canada in 2016 were exported, meaning duty relief programmes could refund roughly 85% of retaliatory tariffs paid by car makers.
Canada has vowed to defend the steel and aluminium industries, but vehicle manufacturing employs some 136,000 workers, according to Statistics Canada, whereas only about 22,000 work in the steel sector, giving the government an incentive to shelter vehicle and parts makers from rising costs.
“These existing programmes continue to be in place and any changes would be done in consultation with relevant stakeholders,” finance department spokesman Jack Aubry said.
Vehicle makers with operations in Canada include General Motors, Ford, Fiat Chrysler, Toyota and Honda, as well as parts makers Magna and Linamar.
Linamar CEO Linda Hasenfratz said the drawback programmes were of particular benefit to her company, since substantially all the steel that the company imports is later exported. Honda said it was still assessing the impact of the tariffs. GM, Fiat Chrysler and Magna declined to comment. Ford and Toyota did not respond to requests for comment.
The Canadian Vehicle Manufacturers’ Association needs to do more analysis before commenting on whether drawbacks could protect the industry, president Mark Nantais said. “There are various options that could be used — that would be one of them,” he said.
But any relief would be temporary if US President Donald Trump imposes tariffs on Canadian-made vehicles after the administration’s national security probe into motor vehicles wraps up. The rebate programmes limit the impact of tariffs on raw materials, not finished products.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said companies that made stainless steel parts or hardened steel tools in Canada could benefit.
John Boscariol, who leads McCarthy Tetrault’s international trade and investment law group, said access to the duty relief programmes had not been a foregone conclusion before the government’s notice, because Canada’s retaliation was technically a “surtax”, not a normal duty.
Some uncertainty remained as companies must apply for the refunds and carefully document how imports are used, Boscariol said. “It introduces costs and complications, and it introduces a likelihood that you might not get that relief. That’s not without cost.”
THE REBATE PROGRAMMES LIMIT THE IMPACT OF TARIFFS ON RAW MATERIALS, NOT FINISHED PRODUCTS