Canada-U.S. Trade: Tiffs and Tussles
- Keywords:
- trade
- cross border
Canada-U.S. trade relations endured four tumultuous years during the Trump Administration, underscored by tit-for-tat tariffs, aggressive enforcement of U.S. trade laws, and renegotiation of the NAFTA under duress. Hitting the reset button on bilateral relations broadly, on February 23, President Biden and Prime Minister Trudeau announced the Roadmap for a Renewed U.S.-Canada Partnership. Although not focussing on trade issues specifically, this “blueprint for an ambitious and whole-of-government effort” covered a wide range of topics including Combating COVID-19, Building Back Better (emphasis on the middle class and clean growth), Accelerating Climate Ambitions, Advancing Diversity and Inclusion, Bolstering Security and Defense, along with Building Global Alliances. The two leaders agreed to “reinforce our deeply interconnected and mutually beneficial economic relationship”.
However, between the ongoing trade disputes that emerged during the previous administration, and the disputes that have since surfaced, the list of Canada-U.S. trade issues and irritants under the Biden Administration is lengthening. Below, we take a quick chronological look at what’s on the list so far.
Keystone XL
On January 21, the first full day in office, President Biden revoked the permit for the Keystone XL pipeline, along with a barrage of other executive actions. The permit for the pipeline carrying up to 830,000 barrels per day of mostly Canadian oil sands crude from Alberta to Nebraska had been approved by President Trump in January 2017. Revocation had been a campaign promise and, besides, Biden was vice president in the Obama Administration which originally nixed the proposal in November 2015.
In March 2020, TC Energy (formerly TransCanada) announced it would proceed with construction of the US$8 billion pipeline. It was about 8% completed (around the Canada-U.S. border) when the permit was pulled. TC Energy cancelled the project on June 9. On July 2, the company filed a Notice of Intent to initiate a legacy NAFTA claim seeking US$15 billion in damages. The Alberta government will be joining the claim as an investor in the project; the province sunk C$1.5 billion into it. Although investor-state dispute settlement was dropped from the USMCA (we’ll being using this acronym interchangeably with CUSMA), claims are still permitted until 2022. The company had started a similar action after November 2015 but dropped it after Trump’s January 2017 decision. Although it’s argued that TC Energy’s case is stronger this time, the U.S. never lost an investor-state dispute under the NAFTA.
Buy American
On January 25, President Biden signed an executive order on Ensuring the Future is Made in All of America by All of America’s Workers. The Administration’s ‘Buy American’ policy says U.S. government agencies should “use terms and conditions of Federal financial assistance awards and Federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States”. They also should “whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive”.
And, to ensure compliance with this executive order and other ‘Made in America’ laws and, thus, to minimize the issuance of waivers, agencies’ proposed waivers will now be reviewed by a newly established Made in America Office (MIAO) within the Office of Management and Budget. All proposed waivers and approvals will be publicized. The MIAO has been ramping up, with a Director announced on April 26 and initial guidance on the waiver process issued on June 11. Arguably, Biden’s Buy American policy is more stringent than the previous Administration, with the President envisioning exceptions to the rules being allowed under “very limited circumstances”.
The CUSMA does not include government procurement provisions, unlike the NAFTA that it replaced, and envisions a reliance on the WTO’s general procurement agreement. Ottawa is pressing for an exemption.
Enbridge Line 5
May 12 marked the day that Michigan Governor Whitmer ordered Enbridge to shut the pipeline (part of Line 5) running along the bottom of the Straits of Mackinac. It didn’t. Six months earlier, Enbridge was notified that its easement to operate dual pipelines was being revoked and terminated, owing to environmental concerns. First built in 1953, Line 5 transports up to 540,000 barrels per day of Canadian light crude oil and natural gas liquids from Western Canada to refineries in Michigan, Ohio, Pennsylvania, Ontario and Quebec. Court-ordered mediation is expected to be completed by the end of August.
The Canadian government filed an amicus curiae brief in federal court on May 11 (in case mediation fails), arguing “the proposed shutdown would cause a massive and potentially permanent disruption to Canada’s economy and energy security”. And, it would harm the “ability to rely on bilateral treaties that are at the heart of the U.S.-Canada relationship”, with specific reference to a 1977 treaty, Agreement between the Government of the United States and the Government of Canada concerning Transit Pipelines. Canada argues the treaty prevents a state, provincial or local government from shutting down a cross-border pipeline.
Meanwhile, Enbridge has proposed building a $500 million Great Lakes Tunnel and move the portion of Line 5 that runs through the Straits into it. Governor Whitmer is also seeking to overturn the state legislation creating the Mackinac Straits Corridor Authority that entered into a December 2018 agreement with Enbridge to oversee construction and operation of the tunnel. On January 29 (2021), Michigan’s Department of Environment, Great Lakes and Energy approved the tunnel. Approval is also required from the U.S. Army Corps of Engineers (USACE). On June 23, the USACE announced it would conduct a comprehensive review of the project (environmental impact statement) instead of a more concise review (environmental assessment), which could delay the anticipated three-year project.
As an aside: on June 23, in a federal court filing, the Biden Administration supported the USACE’s approval of Enbridge’s proposal to replace its Line 3 through Minnesota (made near the end of the Trump Administration). The pipeline runs from Alberta to Wisconsin, via North Dakota and Minnesota, but only the Minnesota section has still to be completed. It’s been facing legal challenges and protests.
Softwood Lumber
On May 21, the U.S. Department of Commerce published preliminary results of its second administrative review of duties on softwood lumber imports from Canada, concluding that they should be raised to a combined average of 18.32% from 8.99%. The actual increase is pending final results due by November.
The original Softwood Lumber Agreement expired in October 2015. During the subsequent year-long stand-still period, a new deal was unable to be reached. The Trump Administration levied average duties of about 20% in April 2017. After the first administrative review, the average rate was lowered to 8.99% from 20.23% in November 2020. Perhaps the review’s conclusion was influenced by an August 2020 unanimous WTO panel ruling that U.S. countervailing duties on Canadian softwood lumber were inconsistent with America’s WTO obligations. The Trump Administration subsequently filed an appeal of that WTO ruling which effectively stalled the process given that the Administration was also blocking appointments to the WTO’s Appellate Body. In December 2020, Canada requested a CUSMA panel review.
Dairy Products
On May 25, the U.S. requested the establishment of a panel under the USMCA to challenge Canada’s allocation of agreed-to tariff-rate quotas (TRQs) for dairy products. Specifically, the fact that the bulk of the import quotas are being reserved for Canadian processors as opposed to Canadian distributors, constraining U.S. exports of finished dairy goods. The request states “these measures deny the ability of U.S. dairy farmers, workers, and exporters to utilize the TRQs and realize the full benefit of the USMCA”. It followed consultations held on December 21, 2020, which did not resolve the dispute.
Solar Products
On June 18, Canada requested the establishment of a panel under the CUSMA to address U.S. tariffs on Canadian exports of solar cell products. These emergency or ‘safeguard’ tariffs were originally imposed in February 2018 at 30% and dropped by five percentage points each year. After the United States International Trade Commission’s (USITC’s) determination of domestic industry injury in September 2017, a mid-term review was released in February 2020. Afterwards, President Trump lifted the 2021 tariff rate to 18% from 15% and removed previous exemptions.
The USITC’s original safeguard determination found that imports from Canada were not a “substantial” share of imports and did not contribute “importantly” to injury. Under the NAFTA, this exempted Canada’s solar products, but the tariffs were applied anyway. Canada requested consultations under the NAFTA, but the U.S. failed to respond. Subsequent consultations held on January 28, 2021 did not settle the dispute.
Bottom Line: It’s widely expected that Canada-U.S. relations will become less tumultuous during the Biden Administration, but it’s unclear whether trade skirmishes will become less frequent. So far, most of them are carry-overs from matters raised before Biden was president. However, in dealing with these trade issues, it now seems that rules will trump rhetoric. Since the inauguration, CUSMA’s dispute settlement process has been employed by both countries. And, the Administration worked to achieve consensus in selecting a new WTO Director-General in the hopes of expediting the institution’s reform
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Michael Gregory, CFA
Deputy Chief Economist & Managing Director
Michael is part of the team responsible for forecasting and analyzing the North American economy and financial markets. He has spent his career working in either ec…(..)
View Full Profile >Canada-U.S. trade relations endured four tumultuous years during the Trump Administration, underscored by tit-for-tat tariffs, aggressive enforcement of U.S. trade laws, and renegotiation of the NAFTA under duress. Hitting the reset button on bilateral relations broadly, on February 23, President Biden and Prime Minister Trudeau announced the Roadmap for a Renewed U.S.-Canada Partnership. Although not focussing on trade issues specifically, this “blueprint for an ambitious and whole-of-government effort” covered a wide range of topics including Combating COVID-19, Building Back Better (emphasis on the middle class and clean growth), Accelerating Climate Ambitions, Advancing Diversity and Inclusion, Bolstering Security and Defense, along with Building Global Alliances. The two leaders agreed to “reinforce our deeply interconnected and mutually beneficial economic relationship”.
However, between the ongoing trade disputes that emerged during the previous administration, and the disputes that have since surfaced, the list of Canada-U.S. trade issues and irritants under the Biden Administration is lengthening. Below, we take a quick chronological look at what’s on the list so far.
Keystone XL
On January 21, the first full day in office, President Biden revoked the permit for the Keystone XL pipeline, along with a barrage of other executive actions. The permit for the pipeline carrying up to 830,000 barrels per day of mostly Canadian oil sands crude from Alberta to Nebraska had been approved by President Trump in January 2017. Revocation had been a campaign promise and, besides, Biden was vice president in the Obama Administration which originally nixed the proposal in November 2015.
In March 2020, TC Energy (formerly TransCanada) announced it would proceed with construction of the US$8 billion pipeline. It was about 8% completed (around the Canada-U.S. border) when the permit was pulled. TC Energy cancelled the project on June 9. On July 2, the company filed a Notice of Intent to initiate a legacy NAFTA claim seeking US$15 billion in damages. The Alberta government will be joining the claim as an investor in the project; the province sunk C$1.5 billion into it. Although investor-state dispute settlement was dropped from the USMCA (we’ll being using this acronym interchangeably with CUSMA), claims are still permitted until 2022. The company had started a similar action after November 2015 but dropped it after Trump’s January 2017 decision. Although it’s argued that TC Energy’s case is stronger this time, the U.S. never lost an investor-state dispute under the NAFTA.
Buy American
On January 25, President Biden signed an executive order on Ensuring the Future is Made in All of America by All of America’s Workers. The Administration’s ‘Buy American’ policy says U.S. government agencies should “use terms and conditions of Federal financial assistance awards and Federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States”. They also should “whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive”.
And, to ensure compliance with this executive order and other ‘Made in America’ laws and, thus, to minimize the issuance of waivers, agencies’ proposed waivers will now be reviewed by a newly established Made in America Office (MIAO) within the Office of Management and Budget. All proposed waivers and approvals will be publicized. The MIAO has been ramping up, with a Director announced on April 26 and initial guidance on the waiver process issued on June 11. Arguably, Biden’s Buy American policy is more stringent than the previous Administration, with the President envisioning exceptions to the rules being allowed under “very limited circumstances”.
The CUSMA does not include government procurement provisions, unlike the NAFTA that it replaced, and envisions a reliance on the WTO’s general procurement agreement. Ottawa is pressing for an exemption.
Enbridge Line 5
May 12 marked the day that Michigan Governor Whitmer ordered Enbridge to shut the pipeline (part of Line 5) running along the bottom of the Straits of Mackinac. It didn’t. Six months earlier, Enbridge was notified that its easement to operate dual pipelines was being revoked and terminated, owing to environmental concerns. First built in 1953, Line 5 transports up to 540,000 barrels per day of Canadian light crude oil and natural gas liquids from Western Canada to refineries in Michigan, Ohio, Pennsylvania, Ontario and Quebec. Court-ordered mediation is expected to be completed by the end of August.
The Canadian government filed an amicus curiae brief in federal court on May 11 (in case mediation fails), arguing “the proposed shutdown would cause a massive and potentially permanent disruption to Canada’s economy and energy security”. And, it would harm the “ability to rely on bilateral treaties that are at the heart of the U.S.-Canada relationship”, with specific reference to a 1977 treaty, Agreement between the Government of the United States and the Government of Canada concerning Transit Pipelines. Canada argues the treaty prevents a state, provincial or local government from shutting down a cross-border pipeline.
Meanwhile, Enbridge has proposed building a $500 million Great Lakes Tunnel and move the portion of Line 5 that runs through the Straits into it. Governor Whitmer is also seeking to overturn the state legislation creating the Mackinac Straits Corridor Authority that entered into a December 2018 agreement with Enbridge to oversee construction and operation of the tunnel. On January 29 (2021), Michigan’s Department of Environment, Great Lakes and Energy approved the tunnel. Approval is also required from the U.S. Army Corps of Engineers (USACE). On June 23, the USACE announced it would conduct a comprehensive review of the project (environmental impact statement) instead of a more concise review (environmental assessment), which could delay the anticipated three-year project.
As an aside: on June 23, in a federal court filing, the Biden Administration supported the USACE’s approval of Enbridge’s proposal to replace its Line 3 through Minnesota (made near the end of the Trump Administration). The pipeline runs from Alberta to Wisconsin, via North Dakota and Minnesota, but only the Minnesota section has still to be completed. It’s been facing legal challenges and protests.
Softwood Lumber
On May 21, the U.S. Department of Commerce published preliminary results of its second administrative review of duties on softwood lumber imports from Canada, concluding that they should be raised to a combined average of 18.32% from 8.99%. The actual increase is pending final results due by November.
The original Softwood Lumber Agreement expired in October 2015. During the subsequent year-long stand-still period, a new deal was unable to be reached. The Trump Administration levied average duties of about 20% in April 2017. After the first administrative review, the average rate was lowered to 8.99% from 20.23% in November 2020. Perhaps the review’s conclusion was influenced by an August 2020 unanimous WTO panel ruling that U.S. countervailing duties on Canadian softwood lumber were inconsistent with America’s WTO obligations. The Trump Administration subsequently filed an appeal of that WTO ruling which effectively stalled the process given that the Administration was also blocking appointments to the WTO’s Appellate Body. In December 2020, Canada requested a CUSMA panel review.
Dairy Products
On May 25, the U.S. requested the establishment of a panel under the USMCA to challenge Canada’s allocation of agreed-to tariff-rate quotas (TRQs) for dairy products. Specifically, the fact that the bulk of the import quotas are being reserved for Canadian processors as opposed to Canadian distributors, constraining U.S. exports of finished dairy goods. The request states “these measures deny the ability of U.S. dairy farmers, workers, and exporters to utilize the TRQs and realize the full benefit of the USMCA”. It followed consultations held on December 21, 2020, which did not resolve the dispute.
Solar Products
On June 18, Canada requested the establishment of a panel under the CUSMA to address U.S. tariffs on Canadian exports of solar cell products. These emergency or ‘safeguard’ tariffs were originally imposed in February 2018 at 30% and dropped by five percentage points each year. After the United States International Trade Commission’s (USITC’s) determination of domestic industry injury in September 2017, a mid-term review was released in February 2020. Afterwards, President Trump lifted the 2021 tariff rate to 18% from 15% and removed previous exemptions.
The USITC’s original safeguard determination found that imports from Canada were not a “substantial” share of imports and did not contribute “importantly” to injury. Under the NAFTA, this exempted Canada’s solar products, but the tariffs were applied anyway. Canada requested consultations under the NAFTA, but the U.S. failed to respond. Subsequent consultations held on January 28, 2021 did not settle the dispute.
Bottom Line: It’s widely expected that Canada-U.S. relations will become less tumultuous during the Biden Administration, but it’s unclear whether trade skirmishes will become less frequent. So far, most of them are carry-overs from matters raised before Biden was president. However, in dealing with these trade issues, it now seems that rules will trump rhetoric. Since the inauguration, CUSMA’s dispute settlement process has been employed by both countries. And, the Administration worked to achieve consensus in selecting a new WTO Director-General in the hopes of expediting the institution’s reform
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