During a cabinet retreat focused on the economy, the Government of Canada announced the implementation of a 100% surtax on Chinese EVs, a 25% surtax on steel and aluminum products from China, limitations on EV tax incentives, and an additional consultation on proposed measures related to batteries, semiconductors, solar products and critical minerals. The Government cites the risk of trade diversion due to trade measures implemented by the EU (read our overview here) and USA (read our overview here) in its reasoning for implementing the new surtaxes.
New Measures
The Government has announced three new measures:
- A 100% surtax to apply to “Chinese-made” EVs in addition to the MFN tariff treatment (duties of 6.1%) which currently applies to these goods. The 100% surtax will be effective October 1, 2024. The list of HS Codes identifying the EVs subject to the surtax is available here, which includes goods classified under headings 87.02 to 87.04.
- A 25% surtax on steel and aluminum product imports from China. This surtax will be effective October 15, 2024. The proposed list of HS Codes identifying steel and aluminum goods is available here, which includes goods classified under the following headings:
- Aluminum products – 76.01 to 76.09
- Steel products – 72.06 to 72.29 and 73.01 to 73.06 (Surtax Product List).
The final Surtax Product List will be announced before or on October 1, 2024. Concerned parties have an opportunity to submit comments regarding the proposed Surtax Product List as outlined below.
The surtax will apply to all Chinese goods in transit to Canada on October 15, 2024. Chinese origin goods are defined as goods that are eligible to be marked as a goods of China under Canada’s Determination of Country of Origin for the Purpose of Marking Goods (Non-CUSMA Countries) Regulations. In other words, all steel and aluminum goods identified in the published listed that are “substantially manufactured” in China are subject to the 25% surtax. The surtax will be reviewed before October 15, 2025 and may be subject to extension, or supplemented by additional measures.
Notably, many of the steel and aluminum products included in the proposed Surtax Product List are subject to AD/CVD duties. The 25% surtax would apply in addition to any AD/CVD duties.
- Limitations on the eligibility for Incentives for Zero-Emission Vehicles (iZEV), the Incentives for Medium and Heavy Duty Zero Emission Vehicles (iMHZEV), and the Zero Emission Vehicle Infrastructure Program (ZEVIP) to products manufactured in countries with Canada FTAs.
Additionally, the Government has announced a second 40-day consultation on other sectors “critical to Canada’s future prosperity”, citing the following products: batteries and battery parts, semiconductors, solar products and critical minerals. These same products were targeted in the May 2024 announcement by the United States, which announced tariffs of 25% or 50%. This consultation is in addition to the ongoing consultation open until September 23 on Canada’s economic resilience (read our overview on Baker McKenzie’s Canada Insight’s Blog here).
Next Steps
If you are importing goods included on the Surtax Product List, you may consider providing comments to the Government before September 20, 2024 by writing to the Department of Finance at tariff-tarif@fin.gc.ca (include “Steel and aluminum surtaxes” in the subject line).
Submissions should include the following information:
- Name, address, telephone number and contact person.
- Relevant 8-digit tariff items and description of the goods of particular interest.
- Reasons for the support/concern with the proposed surtaxes. Include information to substantiate any claims regarding benefits/concerns due to the surtax.
- Indicate whether information is commercially sensitive.
Parties can seek confidentiality protection for their submissions by including a request for partial or full non-disclosure, or that personal identifiers or other sensitive information be removed prior to publication. Baker McKenzie’s Canadian International Trade & Customs practice has significant experience in trade-related government advocacy and are well placed to assist businesses with crafting submissions to the Department of Finance.
Looking Ahead
While the surtax on EVs comes into force on October 1 as-is, the Government will announce the final Surtax Product List before or on October 1, 2024, which will come into force on October 15, 2024. Note that both of these surtaxes will be implemented either right before, or during the “black-out” period for the Canada Border Services Agency’s new import portal, CARM.
Importers should determine whether they are importing EVSs subject to the 100% surtax and should review the final Surtax Product List to determine whether they are importing steel and aluminum goods subject to the 25% surtax. If importing goods subject to these surtaxes, importers should coordinate with their customs compliance professionals and financial departments to discuss customs compliance with the surtaxes and the impact on future duty and tax liabilities.
