Our Voices

Trade Wars: A NAFTA and Tariffs Update Mexico-Canada Relations and Negotiations

By Véronique Malka

iStock imageryCanadian and Mexican immigration lawyers continue to be concerned about the future of the North American Fair Trade Agreement (“NAFTA”), an agreement signed by Mexico, the United States, and Canada, allowing for more open commercial trade between the three countries. This treaty has been serving as a useful vehicle to facilitate the cross-border admission of foreign workers in North America since 1994, but some fear that it may come to an end. Throughout his campaign for the Presidency of the U.S.A, President Trump announced that he would be renegotiating the terms of NAFTA, and possibly disbanding it.

It has now been a little over a year since the negotiations began, and it seems like no conclusions have been reached yet. Both the Canadian and Mexican governments are growing impatient with the U.S. government, wanting the discussions to finally come to an end. The Economy Secretary of Mexico, Ildefonso Guajardo, stated in June 2018 that he seeks to maintain the trilateral trade agreement.

Mexico-Canada relations are multifaceted, ranging from economic to political dialogues to promote collaboration on areas like security, environmental protection, trade, and tourism. Here are a few facts about Canada’s relationship with Mexico:

  1. Over 2 million Canadians traveled to Mexico in 2017 for both tourism and business, and with Mexico’s rising middle class, over 250,000 Mexicans visited Canada during that year.
  2. Canada’s direct investments into the Mexican economy reached over $16.7 Billion CAD in 2017.
  3. Around 6,000 Mexican students are attending a Canadian higher education institution, strengthening the academic and cultural exchange between the two countries.

The state of NAFTA is still unsure to this day, but we are confident that, regardless of the final negotiations, Mexico and Canada’s diplomatic and economic relations will remain strong. Same cannot be said about Canada-U.S. relations, which now involve a war on tariffs. Companies in the U.S. are already feeling the impact of double tariffs on certain imports of steel and aluminum. In order to minimize the impact of the tariffs, both the U.S. and Canada have legislation that provides relief.

Navigating U.S. Tariffs on Steel and Aluminum Imports

In a Presidential Proclamation, issued in March 2018, President Trump announced that aluminum imports to the U.S. threatened “the national security of the United States” and weakened the domestic economy. The Trump Administration subsequently imposed tariffs of 25% on steel and 10% on aluminum imports. In response, the Canadian Government imposed a “dollar-for-dollar” retaliatory tariff on the U.S.

Many corporations in the USA are already feeling the hit of the Tariffs placed by the Trump Administration.  Some of our clients conducting cross-border trade between Canada and the USA are actually being taxed twice on the movement of steel and aluminum.  Before the conflict escalates (and we hope not) to the automotive industry, it is imperative to grasp the implications and possible remedies available currently to those companies affected.

The tariffs may mean higher prices on everyday goods such as cars and sodas. Critics argue that although the tariffs may benefit U.S. aluminum and steel companies in the short run, they may hurt the economy overall, as U.S. companies try to navigate the higher import costs and retaliatory tariffs by cutting jobs. One consulting firm estimated that five jobs would be lost for every one gained as a result of the tariffs.

The Government of Canada has established a framework for considering remission requests to allow relief from payment of surtaxes or issue refunds for surtaxes already paid by a Canadian business. Requests for remission will be considered by a federal inter-departmental committee and must follow the strict template for submission laid out by the Department of Finance Canada. Requests for remission will only be considered where:

  1. They address situations  of short supply in the national or regional domestic market,
  2. A Canadian business has contractual obligations, existing prior to May 31, 2018, to use U.S. steel or aluminum,
  3. They address other exceptional circumstances that could have severe adverse effects on the Canadian economy (determined on a case by case basis).

The U.S. Department of Commerce has also implemented a process for businesses to obtain relief from these tariffs. Individuals and businesses using aluminum and steel products in the U.S. can submit an exclusion request. A separate exclusion request must be submitted for each product imported, along with a detailed description and the request must show that there is no harm to U.S. national security as a result of the imports.

The uncertainty caused by these tariffs and the escalating trade wars has made it increasingly difficult for businesses to navigate cross-border trade. It is essential to have access to a dedicated cross-border legal team that can assist in finding the most cost-effective method for your business. CKR Law’s global team is skilled in dealing with international cross-border issues, the Firm’s Global Mobility Co-Chair can be reached at: vmalka@ckrlaw.com.

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