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Canada tariff exemptions offer auto industry relief

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By Reuters
Canada tariff exemptions offer auto industry relief
FCA assembly workers work on 2019 Pacifica minivans at the FCA Windsor Assembly Plant in Windsor, Ontario, Canada October 5, 2018. REUTERS/Rebecca Cook   -   Copyright  REBECCA COOK(Reuters)

TORONTO (Reuters) – Canada has excluded a long list of steel and some aluminium products from its 25 percent tariff on U.S. metal, offering short-term relief to the country’s auto sector, which relies heavily on U.S.-made steel.

The exemptions, which reduce vehicle and parts manufacturers’ costs, show the Canadian government is willing to protect autos, a key export industry, even when that benefits U.S. steelmakers in the midst of a trade war.

The Canadian tariffs were imposed on July 1, 2018, in retaliation for U.S. steel and aluminium tariffs

On Thursday, the Canadian government published two lists of mostly steel products newly exempt from tariffs because of shortages, after companies sought relief. It did not say which companies or sectors had requested exemptions.

Companies who applied for tariff relief can import some of the products duty-free until Dec. 31, 2018, and the rest are duty-free indefinitely, according to instructions posted online.

“While this limited relief is good, it’s no good if the tariffs go beyond Dec. 31st,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, speaking about the auto sector as a whole. “For business planning purposes, it’s a Band-Aid.”

Volpe noted that companies in the auto sector import steel for manufacturing programs that usually last four to seven years, so an exemption that only lasts a few months does not alleviate much uncertainty.

In Canada, major automakers commonly buy U.S. steel under contract, import and distribute it to their Canadian suppliers as well as their own plants. That means they are usually liable for tariffs.

The Canadian government is still evaluating applications made by companies who argued they should be exempt from tariffs even on products that are not in short supply, because they are locked into contracts. Volpe expects news soon, but said he does not know how the government will rule.

One source at a major automaker with operations in Canada reviewed the lists of exempt products and said they include about 60 to 70 percent of the import codes the automaker uses. The source said the exemptions were a good first step but not a complete solution to the tariff problem.

Magna International, North America’s largest auto parts maker, applauded the government’s efforts and will continue to work with the government to “address open issues not covered” by Thursday’s order, Magna spokeswoman Tracy Fuerst.

Vehicle manufacturers with operations in Canada include General Motors Co <GM.N>, Ford Motor Co <F.N>, Fiat Chrysler Automobiles <FCHA.MI>, Toyota Motor Corp <7203.T> and Honda Motor Co <7267.T>. Parts makers include Magna and Linamar Corp <LNR.TO>.

(Reporting by Allison Martell; Editing by David Gregorio)