December 14, 1998

Tariff Treatment of Automotive Steel

The following letter to CSCB President Carol West is from The Honourable James Peterson, P.C., M.P., Chairman, House of Commons, Standing Committee on Finance.

I am writing concerning the tariff treatment of automotive steel. You will recall that Bill C-11, which implemented the new simplified Customs Tariff on January 1, 1998, provided duty-free treatment for materials, including steel, used in the production of vehicles and parts. This proposal was intended to make the Tariff more transparent and predictable and was based largely on the need to address a tariff anomaly (OEM parts and the vast majority of imported vehicles are duty-free) so as not to discourage investment in Canadian production facilities.

The proposal also recognized that: the vast majority of automotive steel originates from the USA and would be duty-free under NAFTA on January 1, 1998; the already low Most-Favoured-Nation (MFN) tariffs on automotive steel (currently between 4.5% and 6%) are scheduled to be phased-out by 2004, at the latest; and, as a result of drawback and various other duty relieving provisions, Canadian materials producers have essentially been operating, for many years, in a duty-free environment.

You will also recall that at the Senate Committee hearings on Bill C-11 last December, Canadian steel producers expressed concerns about the competitive problems the proposal could have for them, particularly in light of the financial crisis in Asia, and sought to have the tariffs imposed on the automotive steel they produce. Consistent with the commitment made at the Senate hearings, my officials and I have consulted with steel and automotive producers over the last several months on this issue.

I had hoped that a mutually satisfactory industry compromise to this issue could be reached; however, it was not possible.

In the circumstances, and since the policy rationale for the duty-free tariff provision for automotive materials, including steel, remains valid, particularly the fact that automotive material producers have effectively been operating in a duty free environment for many years now, I have concluded that duty-free entry for steel used in the manufacture of vehicles and automotive parts should be continued and will, therefore, not be proposing changes to the tariff treatment of automotive steel.

With respect to the competitiveness concerns raised by the steel producers, we have assured them that we will continue to monitor steel imports into Canada.