Thank you.
My name is Gian Paolo Vescio. I'm the Director of External Affairs and Internal Counsel at the APMA. The APMA represents over 280 companies, 95% of the independent parts production in Canada, which amounts to about 96,000 employees in Canada, over 42,000 in the U.S. and over 43,000 in Mexico. We're here to discuss the impact of tariffs with respect to steel and aluminum, and provide a slight update of our comments now that the NAFTA negotiations have concluded with the USMCA.
As previously discussed by my president, the power to levy section 232 tariffs on steel and aluminum derived from the U.S. Trade Expansion Act of 1962 through which Congress granted the President the power to impose tariffs for national security reasons. The definition of national security is markedly wider under this act than others, but once set in motion by the President, the U.S. commerce department initiates an investigation which includes public consultation, and subsequently provides the President a report with recommendations on whether the threat is accurate and if tariffs should be levied.
Congress has the power to repeal if it disagrees with the President, but perhaps this current Congress doesn't seem to desire to do so with respect to some of the President's initiatives. That being said, we are closely monitoring the election which has the potential of flipping the House to not the President's party, and there may be political will to repeal some of the President's initiatives, including the section 232 tariffs.
The implementation and the usage of the tariffs are challengeable in international trade court, and U.S. commercial entities are able to seek injunctive relief in U.S. district courts. However, the test is quite high.
The courts have been reluctant to limit the powers conferred to the President. However, since the implementation of the tariffs on July 1, there have been a number of challenges to section 232 tariffs. Most notably, the American Institute for International Steel, which is currently challenging its constitutionality, was successful in a motion to have the matter heard before a panel of three judges as opposed to one. This is only important because there is an American legal belief that decisions by three judges are directly appealable to the Supreme Court of the United States, which simply means that it could expedite the decision on section 232 tariffs within the U.S. legal framework.
As previously noted, steel and aluminum are critical ingredients, the most valuable mechanical structural parts of a car. Stainless steel and other specialty steels used in automotive tooling are not available in Canada at the required quantities, and Canadian parts production buys both Canadian and U.S. steel. Canada is not a threat to American steel or steel interests.
However, we understand that both the tariffs and the countermeasures employed by Canada, as a result, are being felt on both sides. Though Canada has taken positive steps toward relief with respect to the steel consumers who are directly affected through the tariffs, we understand that this is not a sustainable long-term solution.
The Department of Finance has allowed any firm importing any of the metals with the HS codes listed in the schedules of the remission order which are having to pay the tariff to be eligible for a drawback. While it's a positive reprieve from the countermeasures, the tariff is still paid out of pocket. If you are a medium or a large company, you may be able to shoulder the cost until returned to you, but smaller, leaner firms may run into cash planning issues as they may not be financed to wait for the drawbacks.
Furthermore, though the drawback system works well for short supply situations, the Department of Finance hasn't addressed how the drawbacks will work with respect to contractual obligations. Our members are interested to hear the decision on that matter.
Though the countermeasures by our government, we believe, were necessary, we continue to urge the Canadian negotiating team to maintain their resolve and pressure in trying to reach a sustainable trade regime on steel and aluminum. Obviously, not having the steel and aluminum matters dealt with within the USMCA was not ideal, but it is worth repeating that when dealing with unconventional parties using unconventional negotiating tactics, the road to resolution can often be unconventional.
We believe that steel and aluminum section 232 tariffs cannot be looked at within a vacuum, and we believe there are a number of factors that will affect the resolution. There are currently cases making their way through the U.S. courts. The mid-term elections may affect section 232 tariff impositions, but also the ratification process of the USMCA, and the ability of Canada's team to accurately display to our American friends that the path to prosperity is through collaboration and not isolation. It's kind of like what was done with autos.
This past week, the USTR requested Congress for a TPA, a trade promotion authority, which is a request to Congress to allow it to begin official trade talks with other nations. The USTR has requested a TPA for the European Union, Japan and the United Kingdom. It's important to note that Germany and Japan are jurisdictions with major steel and aluminum regions, and they are dealing with the tariffs as we are, along with their own local challenges.
It should be noted that if Congress votes to give them the TPA, once those discussions ramp up, it could have implications on how the matter is dealt with here. The APMA is keen on seeing this resolution take place.
