U.S. Section 232 side letters summary
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A key Canadian objective in the NAFTA renegotiations was to obtain an exemption from potential future use of measures under the Section 232 of the U.S. Trade Expansion Act, including against Canada’s auto sector. The potential use of these measures threatens Canadian producers and workers. Under the Canada-United States-Mexico Agreement (CUSMA), Canada secured a commitment from the United States to provide at least a 60-day exemption from any future measures under Section 232. During this time, the United States and Canada would seek to negotiate an appropriate outcome based on industry dynamics and historical trading patterns. Canada also secured an exemption for a quantity of automobiles and auto parts that will help ensure the continued viability and growth of these critical industries. This exemption will only take effect should the United States apply Section 232 measures on Canada’s automotive sector. The side letters entered into force on November 30, 2018.
The Canada-U.S. 232 Autos side letter guarantees an exemption from Section 232 measures for 2.6 million Canadian automobiles annually. Light trucks will not count toward this amount and are fully exempt from 232 measures. This volume exceeds both Canada’s recent exports of vehicles to the United States and its total production capacity, ensuring that Canadian car producers will not only be able to continue to sell their products into the United States in the event of a Section 232 measure, but also have room to expand their operations.
The 232 Autos side letter similarly ensures an exemption from Section 232 measures for US$32.4 billion worth of Canadian auto parts annually. This exemption will allow Canadian parts producers to continue to sell into the U.S. market and to expand their footprint well beyond its current size.
Under both the general and autos-specific commitments, Canada has retained its right under the WTO agreement to challenge the United States on Section 232 measures and will continue to have the ability to take retaliatory measures of equivalent commercial effect for any duties or restrictions imposed under Section 232.
Technical summary of U.S. Section 232 side letters
- The United States will exempt Canada from any future Section 232 measures for at least 60 days, during which time the United States and Canada would seek to negotiate an appropriate way forward.
- In the event that the United States imposes Section 232 measures, the Canadian exemption for automobiles provides an exemption from Section 232 measures for up to 2.6 million vehicles annually, a level that exceeds recent Canadian exports. Light trucks will not count toward this amount and are fully exempt from Section 232 duties.
- A similar outcome was achieved for auto parts; Canada will have an exemption from Section 232 measures for up to US$32.4 billion worth of Canadian auto parts annually.
- Canada retains the right to take a measure of equivalent commercial effect in response to Section 232 measures that fall outside the scope of these exemptions.
- Canada’s rights under the WTO agreement to challenge Section 232 measures have been preserved.
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