Storm Clouds on Steel

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July 10, 2017

Storm Clouds on Steel

On April 20th, President Donald Trump signed an executive order calling for the U.S. Department of Commerce to study how steel imports impact national security. With the initial report from that study due any day, and led by the president along with Commerce Secretary Wilbur Ross, the U.S. appears intent on starting a trade war over steel imports. The president is reportedly leaning in favour of imposing tariffs on imported steel, potentially in the 20 per cent range, despite the opposition of nearly all his cabinet.

House Ways and Means Committee chair Kevin Brady sounded a note of caution: “We want to make sure that how the White House frames their ultimate action that it doesn’t punish our allies who are trading fairly, we want to make sure it doesn’t give a green light to those who trade unfairly to do more of it.” In Hamburg on the weekend, the G20 leaders called for “collective solutions” to tackle the global steel overcapacity issue, including a call to fight protectionism, and requested a further report on overcapacity in November from the Global Forum on Steel Excess Capacity. Earlier, European Commission President Jean-Claude Juncker said that the European Union “will react quickly and with appropriate countermeasures,” should the U.S. study lead to quotas or tariffs against imports of European steel.

In its written submission, Canada has already asked that it be excluded from any potential remedies resulting from the probe. In addition, industry representatives have argued that North American steel imports should be exempt from any proposed trade restrictions because they do not pose any national security threats to the U.S.

While U.S. Trade Representative (USTR) Robert Lighthizer has indicated that exclusions could be made for certain producers, especially within the integrated supply chain of North America, the outcome of the investigation is being watched closely by potential victims of collateral damage, including Canada. Our embassy in Washington last week released a one-page fact sheet on Canada-U.S. steel trade, arguing that:

  • Canada buys more iron and steel from the U.S.—about $3 billion more between 2014-2016;
  • The U.S. and Canadian steel sectors are deeply integrated and part of binational supply chains for products used in the automotive, construction and energy sectors;
  • Most Canadian and U.S. steelworkers share the same union; and
  • “Buy America” requires the use of U.S. steel in federally-funded projects, while Canada has no matching requirement.

Supreme Court of Canada Strikes Down “Promise Doctrine”

In a landmark decision, (AstraZeneca Canada Inc. et al. vs Apotex Inc. et al.) the Supreme Court of Canada recently threw out the “promise doctrine,” an interpretation of patent law that would have been a huge irritant in the upcoming NAFTA talks. Through rulings by lower Canadian courts, including the Federal Court of Canada, the doctrine enabled the overturning of patent protection if even one “promised” utility of an invention was not soundly predicted or demonstrated in practice. The Supreme Court found that interpretation to be “punitive” and having “no basis in the (Patent) Act.”

“To invalidate a patent solely on the basis of an unintentional overstatement of even a single use will discourage a patentee from disclosing fully, whereas such disclosure is to the advantage of the public,” said the Court.

Getting rid of the promise doctrine was at the top of the hit list of U.S. pharma companies in the renegotiation of NAFTA, along with increased patent protection – the Supreme Court ruling removes a major issue from the NAFTA negotiating agenda.

Congressional Hearings on U.S. NAFTA Wish List

Before Congress rose for the summer, USTR Lighthizer hosted three days of NAFTA hearings in Washington during the last week of June. The hearings were an opportunity for stakeholders and lobby groups to have their say in determining the administration’s negotiating objectives. While many of those appearing embraced the “Do No Harm” narrative that the Chambers of Commerce in all three partner countries have championed, a number of issues emerged as potential points of contention:

  • Biotech rules that would go beyond the standards agreed to in TPP were advocated by a consortium of associations led by the U.S. Biotech Crops Alliance;
  • Rules of origin “loopholes” were addressed by the textile sector, where protection from yarn producers in China was a primary concern;
  • Internet giants called for an end to data localization within borders and attacked the relatively low de minimis thresholds used by Canada and Mexico when goods cross into their territory; and
  • U.S. wine producers continue to complain about the trade barriers erected by provincial governments that favour Canadian domestic producers.

The overall assessment from the hearings is that NAFTA negotiations will focus on a modernization of the agreement, including labour standards that address the challenges both the United States and Canada face with Mexico. Beyond the modernization and the inclusion of new sectors of the economy (e-commerce, services), non-tariff trade barriers in agriculture have been a focus of the hearings, with discussions being led by the agriculture secretary Sonny Perdue.

Softwood Agreement?

Rumours of an imminent agreement on softwood lumber, predicated by Commerce Secretary Wilbur Ross’s desire to clear the decks on trade irritants pre-NAFTA negotiations, have been much quieter in recent days. Any agreement on softwood must receive approval from the U.S. sector, whose demands for tough quotas on Canadian imports are so far untenable for the Canadian sector. The new NDP government in British Columbia has pledged to make the issue a priority, but with so much of the leverage in this negotiation on one side of the table with the U.S. producers, an agreement continues to be elusive.

Delay in Bombardier Case

Last week, the U.S. Department of Commerce announced a delay in its determination of a preliminary countervailing duty in the investigation of alleged Canadian subsidies of Bombardier for the construction of its 100-150 seat passenger aircraft. The preliminary determination is not now expected until September 25th, set back from the earlier date of July 21st.

PM to Address U.S. Governors

The PMO announced last Friday that the prime minister will deliver the keynote address to the 2017 Summer Meeting of the National Governors’ Association in Providence, Rhode Island on July 14th.

According to the announcement, the PM will “discuss the close collaboration between our two countries, with a particular focus on Canada-U.S. trade. He will also emphasize the importance of the Canada-U.S. partnership in cross-border security and the potential for common solutions on climate change.”

CETA To Take Effect September 21st

At last week’s G-20, Prime Minister Trudeau met with EU Community officials and announced that September 21st will be the date on which the provisional application of the Comprehensive Economic and Trade Agreement will begin.