Written By Valerie Hughes and Darrel Pearson
U.S. import tariffs of 25 percent on steel and 10 percent on aluminium imposed in 2018 on products from most countries, including Canada (until Canada negotiated their withdrawal in the context of the United States–Mexico–Canada Agreement (CUSMA) negotiations), have been found to be World Trade Organization (WTO)-inconsistent by four WTO dispute settlement panels. Without pause, the United States dismissed the December 2022 rulings as flawed and declared that it would continue to impose the tariffs. It has now appealed the rulings even though its own actions have impeded the ability of the WTO Appellate Body to hear any appeals.
The United States claimed that steel and aluminum imports undermine its domestic steel and aluminum industries, the viability of which are critical for its national security. The United States continues to maintain that the tariffs are permitted by virtue of a little-used exception under WTO rules that allows a WTO member to take any measures it considers necessary for the protection of its essential security interests.
Although the United States has been highly critical of the WTO dispute settlement system for several years, it had not previously refused outright to comply with a WTO ruling. This means that Canada (and other WTO members) remain vulnerable to other U.S. measures—be they on steel or other products—that are inconsistent with U.S. trade obligations, but are imposed by the United States purportedly in the interests of national security.
Canada Was Among Nine WTO Members That Challenged the U.S. Tariffs
Canada was one of nine WTO members that challenged the U.S. tariffs at the WTO and rejected the notion that imports of Canadian steel and aluminum products undermine U.S. national security. Canada withdrew its challenge in 2019 when the United States agreed to eliminate the tariffs in respect of Canadian products. This followed countermeasures taken by Canada against imports of U.S. steel and aluminum products, actions the United States, in turn, challenged at the WTO. The U.S. challenge was eventually withdrawn as well, as part of a broader settlement of these issues between the two countries. Nevertheless, the settlement provides that both countries retain the right to impose tariffs if imports of these products surge above historic volumes.
The four rulings issued in December relate to challenges brought by China, Norway, Switzerland and Türkiye. The remaining challenges were brought by Mexico, the EU, India and Russia. Mexico’s challenge was withdrawn in 2019 after it reached a mutually agreed solution with the United States. The EU suspended its challenge in January 2022, while the challenges brought by India and Russia are pending.
On January 26, 2023, the United States appealed the four rulings to the WTO Appellate Body, the very institution it has strongly denounced as acting contrary to WTO rules and, due to U.S. actions, no longer has any sitting adjudicators. The Appellate Body is consequently unable to hear appeals, although the right to appeal remains on the books and several WTO members have appealed “into the void”. The United States did not appeal the rulings because it is seeking further WTO review of its actions. Rather, it was a strategic move because appealing the rulings to the non-functioning Appellate Body means that the cases will remain “in limbo” until the Appellate Body is reinstated, which is unlikely at least for the near future. Moreover, it will not be possible for WTO members to obtain permission to impose WTO-sanctioned retaliatory measures to counter the U.S. tariffs while the cases remain, at least technically, under legal consideration.
The Tariffs Were Imposed Pursuant to a Rarely-Used Provision of U.S. Law
The United States imposed the tariffs pursuant to Section 232 of the U.S. Trade Expansion Act of 1962, a rarely-used provision authorizing investigations to determine the effects on the national security of imports and permitting the U.S. President to impose tariffs following a recommendation by the secretary of commerce that "an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security."
The secretary of commerce had initiated investigations into steel and aluminum imports in April 2017, and in January 2018 issued reports concluding that the quantities of steel and aluminum imports as well as global excess production capacity for such goods (especially in China) were weakening the U.S. economy, causing job losses in the U.S. steel and aluminum industries and displacing U.S. domestic production. The reports determined that U.S. producers were in danger of falling below minimum viability levels. This situation constituted a threat to U.S. national security because domestic steel and aluminum production capability are essential to defence and critical infrastructure needs.
Implications of the U.S. Response to the WTO Rulings
The Section 232 tariffs were inconsistent with the United States undertaking in the WTO not to impose any tariffs on steel products and to impose tariffs of 6.5 percent or less on aluminum products. The United States sought to justify its tariffs of 25 percent and 10 percent under an exception that permits WTO members to take actions they consider necessary to protect their essential security interests "in time of war or other emergency in international relations." The panels ruled that the state of the domestic steel industry and global excess production capacity did not rise to the level of international tension to constitute an emergency in international relations. The United States strongly denounced the WTO rulings as flawed and announced that it did not intend to remove the Section 232 duties. It asserted that it “will not cede decision-making over its essential security to WTO panels”.
It is not unusual for WTO members to criticize rulings where their measures have been found to be inconsistent with WTO obligations. Nevertheless, compliance rates in the WTO tend to be very high, if not always very swift, including for the United States. What is unusual is for a WTO member to issue a public statement on the day a ruling is circulated indicating directly that it will not comply with a ruling. Although the impugned measures in these disputes were imposed by President Trump, the Biden Administration demonstrated in rejecting the WTO rulings that the United States remains undeterred in using the security exception to shield from WTO sanction measures it considers necessary to protect its essential security interests—including its economic security interests. This is clearly of concern for countries like Canada because the United States remains Canada’s biggest trading partner by far.
What Can Importers and Exporters Do to Safeguard Their Interests?
Although importers and exporters in Canada have become accustomed to responding to anti-dumping and countervailing duty actions, they would be well advised to add Section 232 potential actions to their radar screens. Exporters and importers may wish to provide timely input to the Canadian government so that it can take their views into account in formulating responses to U.S. actions. The Canadian government’s imposition of retaliatory duties on U.S. steel and aluminum products in response to the Section 232 tariffs were effective in securing an eventual withdrawal of the U.S. tariffs. Whether this strategy should be repeated in other situations—such as if the United States had imposed measures to restrict imports of automobiles and auto parts in response to the section 232 auto investigation—may depend on specific interests. In addition, exporters of relevant products may be entitled to seek relief in the United States through any available exclusions.
The Bennett Jones International Trade and Investment group and the Government Affairs and Public Policy group are available to provide expert advice and assistance on trade enforcement tools as well as on public policy considerations of the government’s potential action going forward.