Panel agrees with Canada that Trump-era U.S. solar panel tariffs violate USMCA

(NAFTATOO)

WASHINGTON — When it comes to trade dispute victories in the post-NAFTA era, Canada just tied it up, 1-1.

A dispute resolution panel has agreed that tariffs on Canadian-made solar products imposed in 2018 by former president Donald Trump violated the terms of the U.S.-Mexico-Canada Agreement.

The panel's final report, released Tuesday, found that by keeping Canadian exports subject to its so-called "safeguard measures," the U.S. was in violation of its obligations under the deal.

The agreement includes language that allows partners to escape such unilateral measures, provided that the levels of their imports are neither a significant share of total imports or contributing to the "serious injury" the measures are meant to prevent.

Canada was hit with tariffs even though the U.S. International Trade Commission had already concluded solar exports stateside averaged less than two per cent over the course of its investigation — not enough to qualify as either a substantial share of total imports or enough to hurt domestic producers.

"The president's proclamation contained no explanation of why that less than two per cent figure … demonstrates that Canada had achieved a 'substantial share' of total imports," the decision reads.

Canada argued that the U.S. violated the agreement "by failing to exclude imports from Canada from its safeguard measure," which "had the effect of reducing imports of Canadian (solar) products and not allowing for reasonable growth."

The U.S. countered by saying that because the USMCA had not taken effect when the tariffs were originally imposed, they could not be challenged under the new agreement — even though Canada's efforts to dispute the tariffs under NAFTA's rules were essentially rebuffed.

It also argued that Canada was consistently in the top 10 sources of imports prior to the USITC's investigation and that imports from Canada were growing substantially between 2012 and 2015.

The U.S. also noted that Canadian Solar, a Guelph-based producer, ranks as one of world's largest manufacturers of solar components, "with substantial production of (solar) cells and modules in China."

International Trade Minister Mary Ng said the panel's ruling "unequivocally confirmed" that the tariffs are "unjustified and in violation" of the new agreement, which Canada refers to as CUSMA.

"Canada will work toward the complete removal of these unjustified tariffs," Ng said in a statement. Exports of solar products to the U.S. have declined by as much as 82 per cent since the tariffs were imposed, her office noted.

"Canada will also ensure that our solar industry, as well as all Canadian industries and workers, can fully benefit from CUSMA."

Ng also acknowledged U.S. President Joe Biden's declaration earlier this month that both extended the measures and also authorized U.S. Trade Representative Katherine Tai to sit down with Canada and Mexico to negotiate a resolution.

Such a resolution would require confirmation that neither country's imports to the U.S. would "undermine the effectiveness of the action," the declaration reads.

"If the USTR subsequently determines … that such an agreement is not effective, the USTR is authorized … to terminate any previous suspension of the action with respect to imports of Canada or Mexico."

Tai's office acknowledged the decision late Tuesday, saying it "reaffirmed the president's authority to make exclusion determinations in safeguard proceedings."

"We will continue to review the report and work with Canada to resolve the dispute."

The decision is the second final report to be issued in a major USMCA dispute between Canada and the U.S. since the agreement took effect in July 2020.

Last month, arbitrators sided with the U.S. in its complaint that Canada was denying American dairy producers fair access to the supply-managed market north of the border.

Canada has also joined Mexico in a request for a dispute resolution panel over how the U.S. is choosing to interpret the all-important auto rules of origin that define what constitutes U.S., Mexican and Canadian content.

This report by The Canadian Press was first published Feb. 15, 2022.

James McCarten, The Canadian Press