11 Jan 2021

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Canada Shines Light on US Solar Cell Tariffs by Initiating USMCA/CUSMA Dispute Settlement Process

On December 22, 2020, the Government of Canada requested dispute settlement consultations with the United States under Chapter 31 of the Canada-United States-Mexico Agreement (CUSMA, which is also referred to as the USMCA in the United States and the T-MEC in Mexico) concerning the continued US safeguard tariffs on Canadian crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products (CSPV products).

By way of background, the US International Trade Commission (USITC) initiated a Section 201 global safeguard investigation on imports of solar photovoltaic products (i.e., cells, modules, panels, laminates) on May 23, 2017, and imposed a 30% tariff on imports of solar products from Canada on January 22, 2018 (with the tariff set to decline by 5 percent each year). The first 2.5 gigawatts of imported solar cells in each of the four years were exempted from this measure. In October 2020, the White House issued a proclamation that would make the fourth-year tariffs 18 percent instead of the expected 15 percent. The rate is set to take effect in February 2021.

Canada has taken the position that under Chapter 10 of the CUSMA, an emergency safeguard action by the United States would exclude Canada unless those imports (i) account for a substantial share of total imports, and (ii) contribute importantly to serious injury caused by imports. The USITC found that neither of these two conditions were met. As a result, the US was required under the North American Free Trade Agreement (NAFTA), and now CUSMA, to exclude Canadian solar products from its safeguard tariffs.

In her letter to the United States Trade Representative, the Honourable Mary Ng, Canadian Minister of Small Business, Export Promotion and International Trade, wrote: “In addition, Chapter 10 of CUSMA prohibits a party from imposing restrictions on a good that would have the effect of reducing imports below the trend over a recent period with allowance for reasonable growth. The United States failed to observe this prohibition in taking its emergency action and continues to fail to observe this prohibition with respect to imports from Canada.”

Under the state-to-state dispute settlement rules provided in Chapter 31 of the CUSMA, if the parties fail to resolve a dispute through consultations, the establishment of a dispute settlement panel may be requested. Chapter 31 states that when a party believes that another party has “nullified or impaired” a benefit that the first party “could reasonably have expected to accrue to it” under the trade agreement, a request may be made for setting up the dispute settlement panel.

According to the statement issued by Minister Ng on January 7, 2021, the US safeguard tariffs have caused Canada’s exports of solar products to the United States to decline by as much as 82% since they were imposed in January 2018.

How the incoming US administration will address this dispute is not currently known. On December 9, 2020, the USTR requested formal consultations with Canada under Chapter 31 concerning how Canada regulates fourteen categories of dairy imports (See “Who’s Milking the New NAFTA? USTR Challenges Canada’s Dairy Quotas under the CUSMA/USMCA”). Stakeholders in Canada, the United States, and Mexico across the economic spectrum will be watching with great interest how these disputes unfold under the dispute settlement machinery of the CUSMA.

Tereposky & DeRose regularly provides advice on the interpretation, application, and implementation of international trade agreements and acts as counsel in international trade disputes, including WTO and regional trade agreement dispute settlement proceedings. Should you have any questions regarding the CUSMA, or any other trade matter, we are at your disposal.

Umair Azam
613.237.1208
uazam@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com