On July 2, 2024, Canada will initiate a 30-day consultation period on potential policy responses to China’s rapid rise as the world’s largest manufacturer of electric vehicles (EVs). Canada alleges that unfair trade practices in the Chinese EV industry directly and indirectly threaten electric vehicles in Canada.

Finance Canada announced the consultations in a June 24, 2024, press release. The announcement states the Canadian EV industry faces unfair competition from Chinese EVs due to Chinese industrial policies and "lack of rigorous labour and environmental standards" in China’s EV industry. According to Canada, these measures have created a global oversupply in EVs that risks disincentivizing investments in EV production worldwide and in Canada.

The announcement also notes that a policy response is necessary to prevent a diversion of Chinese EVs to Canada resulting from actions by the United States (U.S.) and European Union (E.U.) to impose tariffs on Chinese EVs. The U.S. recently announced that the tariff rate on EVs under Section 301 will increase from 25 percent to 100 percent in 2024 as well as increased tariffs on EV batteries, battery components and parts, and critical minerals.

Similarly, the E.U. announced that it will apply provisional countervailing duties of up to 38.1 percent on Chinese-made “battery electric vehicles” beginning on July 4 if discussions with Chinese authorities do not “lead to an effective solution.”

As a result, the consultations will seek views on potential policy responses, including, for example, a surtax under Section 53 of the Customs Tariff. Subsection 53(2) of the Customs Tariff can be used to impose a surtax in addition to customs duties on any goods to enforce Canada's rights under a trade agreement or to respond to “acts, policies or practices of the government of a country that adversely affect trade in Canadian goods or services.”

Section 53 of the Customs Tariff is the same mechanism by which the Government of Canada applied retaliatory surtaxes on imports of steel, aluminum and other goods from the U.S. in 2018 after the U.S. imposed tariffs on national security grounds under Section 232 of the Trade Expansion Act of 1962 on imports of Canadian steel and aluminum.

Next Steps

The 30-day consultation period will open on July 2, 2024, and is expected to remain open until August 1, 2024.