Policy complexity of Canada escalating the trade war with China
In late August, Canada announced a 100 per cent surtax on electric vehicles manufactured in China, and a 25 per cent surtax on Chinese steel and aluminum products. The move was seen as a deeply hostile protectionist move, and an irresponsible and misinformed violation of World Trade Organization policy.
Reports from China have criticized the announcement, saying that it shows Canada is blindly following the direction of the US and EU, without conducting any of its own policy research and without any understanding of the consequences of policy violations, or the impacts it may have on its own USMC treaty partners. In 2023, China-Canada trade was relatively balanced, with total import-export value reaching $88.99 billion. The new changes undermine trade flow and do not appear to have any economic sense, beyond the clear political motive of a trade war.
Namely, if the supply chain is disrupted from Chinese components, then those Western business partners could become less competitive in their own markets, or international markets. Moreover Canada’s global trend in protectionism would expand the trade war more broadly, potentially seeing USMC used as a more aggressive economic bloc depending on what the USA and Mexico do. Undermining cooperation on the rising electric vehicle industry could sabotage global sustainable development while harming Canada’s own economy in the process as demand increases for EVs.
“These actions undermine China-Canada trade ties, harm Canadian companies and consumers’ interests, and do no good to Canada’s green transition and global climate response. China deplores and opposes these actions”, Lin Jian said in a Chinese foreign ministry press briefing on August 27, 2024.
International trade disputes are handled through a wide range of mechanisms between international institutions and bodies of international governance. International trade is widely governed through a complex web of international relations including multilateral agreements such as treaties, institutions, NGOs, domestic national, and customary international laws relating to trade, such as the United Nations (UN).
China initiated an investigation on September 11, 2024, following the developments, which could last up to three months or longer if granted by extension, into whether Canada is in violation of international trade policies of the World Trade Organization (WTO). The WTO is the modern international institution which deals with the rules of trade between nations.
As the trade war escalates, the investigation will likely implicate policies, laws, and mechanisms beyond the WTO’s scope. For example, a currently ongoing formal consultation stage, the establishment of a panel, private interim final report, final report issued to member states, appeal or implementation of outcome, and potential cross retaliation. The current consultations are bringing into question many WTO policies and domestic Canadian laws.
Potential WTO problems with Canadian tariffs on Chinese EVs include:
- By imposing radical tariffs on China, it could violate the WTO’s Most Favored Nation (MFN) status, which by discrimination, goes against the principle to treat all member states equally.
- Canada might be in violation of its Bound Tariff Rate commitments through the WTO.
- If these measures result in imported Chinese products being treated less favorably than similar domestic products, it could violate the national treatment principle.
- If Canada is implementing these tariffs for the purpose of safeguards, for example The Customs Tariff Act of 1997, they must follow WTO rules, including the conduction of proper investigation and potentially offering compensation to affected parties.
- Canada is required to notify the WTO of any significant changes in trade policies. Failure to do so transparently could be problematic.
While China may be primarily concerned with the violation of the anti-discrimination principle of the WTO, there are several areas raised in the WTO dispute consultation:
- GATT 1994 Article I:1 General Most-Favored-Nation Treatment
- With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.
- GATT 1994 Article II:1 a) and b) Schedules of Concessions
- a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.
- b) The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date.
- DSU (Dispute Settlement Understanding)
- Members affirm their resolve to strengthen and improve the effectiveness of the consultation procedures employed by Members (Article 4), policy outlines the procedure…
- Canadian WTO Schedule of Concessions and Commitments (Also available here)
- MFN Tariff refers to Most-Favored-Nation Tariff in regard to a Bound Rate. The Bound Rate is determined through the WTO, to guarantee some principles of fairness in international trade. For example, under an ideal international free trade environment Canada would abide by a 6.1 percent tariff limit for international trade of vehicles, in which going beyond this would demonstrate discrimination under modern rules. In the case that the 100 percent surtax on Chinese EV’s is a gross violation of Free Trade and WTO’s modern rules of a Bound Rate.
- Canadian Law: Customs Tariff Act 1997 Section 53 Special Measures
- Sec 53 – 2, …Notwithstanding this Act or any other Act of Parliament, the Governor in Council may, on the recommendation of the Minister and of the Minister of Foreign Affairs, by order, for the purpose of enforcing Canada’s rights under a trade agreement in relation to a country or of responding to acts, policies or practices of the government of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada…(continues)
International Institutions are paralyzed by political motive and crisis
China’s accession to the WTO in 2001 was a landmark event, bringing new challenges with the progress-resistant institution and the USA. China’s rise and economic development brought contention with US global hegemony. The Doha Negotiations lasted many years settling disputes over rising tariffs, and a global trend of bilateral trade arrangements bypassing the institution. The trend began to take on a divisive character between the Global North and South, in which the US would rig the institution to suit the needs of developed countries, denying any Global South countries from raising the issues of their own development and trade interests.
Since 2018, China and the US have been locked in a trade war, in which containment of China’s economy has overridden any other principle for the US, whether its economic, legal, or WTO policy it claims to respect. Despite the US’s unequal amount of control over the institution over the rest of the member states, the institution’s policies are a clear contradiction to the New Cold War on China, in which Washington became openly hostile to the WTO during Trump’s administration. If the trade war from 2018-present can teach us anything, in historical terms, then we can expect the trade war to escalate. In 2022, Russia began plans to withdraw from the WTO and the World Health Organization, marking a paralysis of international institutions and governance.
At this time the compounding problems with the WTO have left the institution paralyzed, unable to adapt beyond the USA’s hegemony in governing the 164 member states fairly, and unable to effectively resolve disputes. The appeal process no longer has enough decision making states to function, marking a significant decline from 2017-2019. Despite the decay, the nature of the institution is inherently at odds with the tactics used by the US and Canada to spark a trade war to contain China, with many rules and policies still most violated by the US, and now Canada.
Whether the WTO finds Canada in violation of policy, this dispute comes at a time when the consequences are obstructed, and the appeal mechanism is rigged. The legitimacy of the trade institution is now at a critical point, setting course for instability in the international economy.
This article was written by Morrigan Johnson. He is an editorial board member of the International Manifesto Group and an organizer of the Calgary Peace Council. He has published on geopolitics, war and peace, international economy, and international governance.
Source: The Canada Files, October 8, 2024. https://www.thecanadafiles.com/articles/canada-china-trade-dispute-comes-amid-paralysis-of-international-trade-governance