Law Times

Page 10 August 6, 2018 • LAw times www.lawtimesnews.com Businesses should consider assistance post-NAFTA BY MEAGAN GILLMORE For Law Times B usinesses should thor- oughly examine their products and consider available government as- sistance programs to weather the economic uncertainty caused by the ongoing trade battle between Canada and the United States over steel and aluminum prod- ucts, lawyers say. On July 1, the Canadian government began imposing a 25-per-cent surtax on steel pro- duced in the United States as well as 10-per-cent surtaxes on aluminum and various miscel- laneous items, including ketch- up, maple syrup, household dishwashers, lawn mowers, pil- lows and bedding. These surtaxes are in re- sponse to the 25-per-cent tariffs on Canadian steel and 10-per- cent tariffs on Canadian alumi- num the United States imposed on May 31, says the Department of Finance Canada. A lot of companies were sur- prised when the U.S. imposed these tariffs on Canada, says Andrew Lanouette, a partner in Cassidy Levy Kent LLP's Ottawa office. "I think everyone was caught off guard when Canada was put on the list [of countries on which the U.S. was imposing tariffs]," he says. "Prior to the tariffs getting put into place, there'd basically been trade peace between Can- ada and the U.S." Canada has had "small, high- profile" trade disputes with the United States, he says, noting disputes about softwood lum- ber. But they have not been like an "all-out trade war," he adds. The surprise comes partly because of the United States' rationale that the tariffs were needed to maintain national se- curity, says Jessica Horwitz, an associate at Bennett Jones LLP in Toronto, who advises clients on international trade and customs matters. "Canada and the U.S. have had such a close trading and also national security relationship for the past many decades so the idea that Canada would be included in a finding that trade from Canada impairs U.S. na- tional security is something that I think is definitely surprising for a number of people in Cana- da and the U.S," she says. The trade tensions mean more companies are paying closer at- tention to the tariff classification of their products, says Jonathan O'Hara, co-chairman of the in- ternational trade group at Mc- Millan LLP in Ottawa. Import- ers are responsible for ensuring they've filled out customs infor- mation properly about goods they're importing, says O'Hara, and border officials don't typi- cally inspect every piece of paper- work. "[Before these measures], companies took their best stab [at classifying products], and they weren't too concerned about the details," says O'Hara. "But now, because it matters — it's no longer a revenue-neutral thing — it means you could save or have to pay a lot more of these surtax duties. People are cer- tainly a lot more sensitive to it now." Businesses should get a pro- fessional to help them determine if their items are classified prop- erly, says O'Hara. "[A product's classification number] may seem correct on its face, but when you actually go into a more detailed analysis of the technical specifications of the product, it can turn out that's wrong," says Horwitz. Companies also need to confirm where products they purchase from suppliers in the United States are made, she says. "Canadian surtax only ap- plies to goods of U.S. origin. It does not apply to all goods sold by a U.S. company," says Hor- witz. Companies can apply for duty reliefs and duty drawbacks from the government to help reduce their costs, says O'Hara. The Canadian Border Services Agency administers these pro- grams. Under the duty relief pro- gram, companies can apply to have duties waived on items when the items are imported into Canada, government guidelines say. This program is only for companies that import goods into Canada or receive goods that were imported into Canada. The program applies only to items that will be export- ed from Canada, the guidelines say. Duty drawbacks are requests for a refund on duties already paid on items that are imported into Canada and will be export- ed out of the country. Govern- ment guidelines say the claims must be filed within four years of the release date of the import- ed goods or five years for spirits. The goods must be exported or deemed exported before the claim can be filed, the guidelines say. Reduced duties are "a big competitive advantage," O'Hara says, because they mean compa- nies might not have to raise their prices as much to cover their in- creased expenses. Reductions on duties are es- pecially important to look into because some items cross the Canada-United States border several times and could be sub- ject to the surtaxes whenever they cross the border. "It's like a multiplier effect," says Horwitz. For example, a Canadian company may extract steel in Canada and then ship that steel to the United States where it is coated. "By default, that Canadian steel comes back into Canada as U.S. steel even though it was pulled out of the ground in Canada, melted into a slab in Canada," says O'Hara. "That processing in the U.S. under the relevant rules makes it U.S. goods and that really gets to be a sort of kicker for some clients." The Canadian Goods Abroad Program means compa- nies only have to pay the surtax on the amount of value added to the product by the processes that happened in the United States, says O'Hara. As an example, he says, a steel slab made in Canada may have a $900 value when it enters the United States. Af- ter being coated in the United States, it may re-enter Canada with a value of $1,000. Under the Canadian Goods Abroad Program, the 25-per-cent surtax would only apply to the $100 in- crease. These applications require a lot of documents, says O'Hara, and getting all the documents can be "cumbersome," especially if companies don't already have these inventory systems in place. "It's important to have all your ducks in a row before you start to import or export prod- ucts," he says. Companies can also apply to have their goods made com- pletely exempt from the surtaxes by applying for a remittance. This means they need to argue that "the damage being caused [by the surtax] exceeds the po- litical value of the surtax," says Horwitz. Guidelines posted by the Department of Finance say the government will consider giving a remittance when there is short supply of a product in Canada, either nationally or regionally; if Canadian companies signed contracts before May 31 that require them to use U.S. steel or aluminum in their products; or for "other exceptional circum- stances that could have severe adverse impacts on the Cana- dian economy." An intergovernmental com- mittee reviews each request, the guidelines say, and the com- mittee may also consult with domestic producers. The guide- lines also say applicants must include details about domestic competitors with information about how the remission could affect them and details about the exceptional circumstances. "Because it's political, it's all very unpredictable," says Lanou- ette, noting that the government isn't likely going to make a deci- sion that would disadvantage Canadian companies. No one knows how long this trade war will last. The govern- ment's June 29 announcement of the surtaxes says they will FOCUS Andrew Lanouette says news that Canada was included in the list of countries on which the U.S. was imposing tariffs caught people by surprise. See Economic, page 12 • Introduction - New Threats in the Cybersecurity Landscape • Cybersecurity and the Boardroom - Responsibilities of Directors, Offi cers and Counsel • Security and the Cloud - Legal and Technical Considerations • Practical Contracting for Cybersecurity • Cybersecurity in Vendor Management • Managing a Data Breach • Privacy and Security Risks in Blockchain • Is Cyberliability Insurance the Answer? COURSE HIGHLIGHTS: COURSE LEADER: LISA R. LIFSHITZ, PARTNER, TORKIN MANES LLP COURSE LEADER: PETER V. 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