On July 2, 2024, the Government of Canada launched a 30-day consultation on proposed policy responses to surplus supply of Chinese electric vehicles (EV). This Consultation aims to canvas stakeholders on the Government’s policy responses to protect the growing Canadian EV industry from perceived unfair trade-practices in China and the risk of diversion of Chinese EVs to Canada following recent tariffs implemented by the United States (Section 301 tariffs) and the EU (provisional countervailing duties). The Government’s June 24, 2024 Press Release is available here.
Concerned parties may submit comments to the Government until August 1, 2024. View the Consultation here. Information regarding how to submit a response is outlined below.
The Consultation
The Government is requesting comments from interested stakeholders, including Canadian businesses operating in the automotive, critical minerals and clean technology sectors, on the following proposed policy responses.
Surtax on Chinese EV imports
A surtax would be applied under the authority of section 53(2) of the Customs Tariff, which authorizes Canada to impose a duty, in addition to customs duties, in response to “acts, policies, or practices” of a foreign government that “adversely affect trade in Canadian goods or services”. Canada last relied on a surtax in 2018, when it applied retaliatory tariffs on U.S. goods in response to Section 232 tariffs imposed by the United States on Canadian steel and aluminium.
In particular, the Government seeks comments on: the applicable tariff items (see Annex 2 here, which proposes goods falling under headings 87.02, 87.03, and 87.04) and the rate of the surtax; reasons for supporting or opposing a surtax; expected impacts and how to alleviate same; and how imported vehicles could interact with Canadian dealership networks, as well as repair and maintenance services.
Incentive Program Eligibility
The Government may eliminate Chinese EVs from Canada’s Zero-Emission Vehicles Program and the Incentives for Medium and Heavy Duty Zero-Emission Vehicles. The programs, set to end by March 25, 2025, provide point-of-sale incentives for the purchase of zero-emission vehicles. In particular, the Government seeks comments on: reasons expressing support or concern with the elimination; and impacts of an elimination (e.g. EV availability and affordability in Canada).
Investment
In addition to the restrictions on foreign investment available under the Investment Canada Act (ICA), the Government is considering specific restraints on foreign investment from China in the Canadian EV industry. In particular, the Government seeks comments on whether restrictions on the Canadian EV supply chain are required to safeguard net-benefits to Canadians and Canadian national security. In 2022, Canada notably relied on the ICA to order three Chinese companies to divest from Canadian lithium mining companies.
Cyber and data security issues in connected vehicles
The Government has raised the potential for cyber and data security issues in relation to information and communications technology and services in EVs and their infrastructure that is developed, manufactured, or supplied by persons subject to the jurisdiction or direction of China. The Government is seeking comments on how this ICTS presents privacy and national security risks. In particular, the Government seeks comments on: this proposed rule of the U.S. Bureau of Industry and Security; whether OEMs with assembly operations in Canada could procure ICTS from alternative sources other than from China and the necessary transition period to do so; whether EVs will interact with Canadian critical infrastructure; and whether data localization requirements will help address privacy concerns.
Other Measures
The Government is seeking comments on other proposed policy responses to protect Canada’s broader EV supply chains, including steel and aluminium.
Business Impact
Canadian’s alignment of its foreign trade policy with the US and the EU on Chinese EVs may create risk for Canadian businesses exporting to, or doing business in, China. For example, applying a surtax under Section 53(2) of the Customs Tariff may threaten retaliatory tariffs by China, given that a surtax is exceptional and in this context may be inconsistent with Canada’s obligations as a member of the World Trade Organization.
Canadian exports to China have been previously disrupted, for example, in 2019 China suspended imports of Canadian pork products due to concerns with validity of Canadian export certificates and suspended exports from two Canadian canola seed companies due to phytosanitary concerns. These export restrictions were in place for a number of years and were estimated to have cost the affected Canadian industries billions of dollars in lost opportunities and depressed prices.
Businesses making submissions in response to the Consultation must be filed with the Department of Finance by August 1, 2024 and must include:
- company/organization name;
- address;
- telephone number;
- contact person;
- views on the proposed questions; and
- any additional relevant information; and
- an indication of whether any information provided is commercially sensitive.
Parties can seek confidentiality of their submissions by including a request for partial or full disclosure, or that personal identifiers be removed prior to publication.
Submissions should be sent electronically to tariff-tarif@fin.gc.ca with “EV consultation” in the subject line. Alternatively, submissions can be sent in hardcopy by mail to:
International Trade Policy Division (EV Consultations)
Department of Finance
90 Elgin Street, 14th Floor
Ottawa, Ontario K1A 0G5
Baker McKenzie’s Canadian International Trade & Customs practice has significant experience in trade-related government advocacy and is well placed to assist businesses with crafting submissions to the Department of Finance.
