I. Introduction
This submission is in response to the announcement on 24 June 2024 by the Deputy Prime Minister and Minister of Finance, and the Minister of International Trade, of the launch of consultations in respect of Chinese electric vehicle (EV) imports into Canada.
The announcement identified two concerns with EV imports into Canada: state-supported excess capacity and data privacy. The announcement further indicated possible options to address these concerns.
This submission concentrates on the overcapacity issue and, specifically, the trade aspects of the announcement. It makes three recommendations:
- Trade and industrial policy concerns and measures should be treated in a separate and distinct path from data privacy issues.
- The Government should harness the vast and deep expertise of its specialised institutions, to make sure that any measures do not unduly affect competition, productivity, and climate action.
- The proposed measures permit quick action by the Government outside the framework of procedural protections of Canada’s trade remedy mechanism. Although expedient, they give rise to multiple avoidable challenges. The Government should consider enlarging the options available to it.
The information contained in this submission is not commercially sensitive. The authors and Borden Ladner Gervais LLP further consent to the disclosure of this submission.
II. The issue
China’s state-supported excess capacity is a longstanding1 and multisectoral2 global concern. Its impact is complex:
- Cheaper Chinese exports can mean lower prices for consumers and lower costs for intermediary producers. This may have a positive effect on the environment, as lower prices would mean more consumers would be able to afford electric vehicles.
- At the same time, state-supported excess capacity typically results in politically unacceptable and economically untenable distortions in production and the labour market in other producer countries. Job losses and market adjustments in turn drive domestic pressure for corrective – and potentially costly – trade or industrial policy measures.
Excess capacity – and resulting cheaper goods flooding export markets – distort markets in three ways:
- producers lose domestic market share or profits, leading to job losses or investment cut-backs;
- producers lose market share in export markets – leading to economic adjustment measures at home; and
- indirectly, corrective measures taken in response further distort domestic and global markets.
The dynamic institutional and political impacts of these market and policy pressures are no less grave. There is some evidence that failure to adequately address labour adjustments can lead to destabilising populist movements.3 In the same vein, the actual or perceived inability of the WTO framework to address underlying concerns has been one of the reasons for the breakdown of its dispute settlement mechanism.4
Valid as they are, these trade concerns should not, however, be confused with equally legitimate but fundamentally different interests in data privacy protection. For one, data privacy and tariffs5 are not an easy match. For another, there is a risk – and, in this climate of active mis- and disinformation, a heightened one – that one or the other concern might be viewed as a mere afterthought.
Recommendation: conceptually and from a machinery of government perspective, the two issues should be bifurcated and addressed through different policy development mechanisms and policy measures.
III. The consultation framework
It is right and proper that on an issue of such import, the Government consult citizens, the civil society and other stakeholders, affected businesses and unions, academics, think tanks, and other interested parties. A thirty-day consultation framework is not, however, optimal for addressing and developing sound policy for a complex international problem. Accordingly, these consultations should be viewed as only a first step – an important one, to be sure, but a feeder of policy rather than the determinant of one. There are two reasons for this.
First, within the vast apparatus of the government of Canada there are multiple expert instances and policy pathways both designed for and capable of undertaking in-depth analyses of the identified concerns, and making credible, and implementable, policy recommendations.
In respect of the impact of China’s excess capacity on the domestic market:
- Canada has a robust, responsive, and effective trade remedy framework.6 The framework captures not just subsidized goods, but also dumped goods (including goods that are dumped because they are subsidized), and can protect the Canadian domestic industry against import surges that cause or threaten to cause serious injury.
- The Canadian International Trade Tribunal,7 a quasi-judicial tribunal with members and staff expert in subsidies and trade issues more generally, has the mandate,8 to undertake an investigation “on any matter in relation to the economic, trade or commercial interests of Canada” referred to it by the Government.
- The Competition Bureau9 may be tasked with undertaking an inquiry, “into the state of competition in a market or industry”,10 or to make representations11 in respect of any measures the Government may be contemplating.
Second, whatever path Canada takes requires robust public debate. In this sense, a public inquiry is likely to be more productive because it would involve an engagement between experts, rather than a consultation in which submissions are made to the government without taking account of statements and submissions that others have made.
In the light of the above, the results of these consultations should help guide additional expert analysis by instances of the government of Canada created for that purpose.
Recommendation: The consultations should help focus the questions and issues raised by Chinese excess capacity in EVs. At the same time, the Government should consider harnessing the vast and deep expertise in its specialised institutions, to make sure that any measures do not unduly affect competition, productivity, and climate action.
IV. The possible measures
The Deputy Minister and Minister of Finance, and the Minister of International Trade, set out measures that may be imposed following the consultations.12 These include:
- a surtax on Chinese-origin EVs under section 53 of the Customs Tariff;
- adjustments to the federal Incentives for Zero-Emission Vehicles (iZEV) program, which offers point-of-sale incentives for consumers who buy or lease eligible zero-emission vehicles; and
- increased foreign investment restrictions.
Each of the first two measures may address, at least in part, concerns arising from Chinese EV excess capacity in that they could disincentivize consumers from purchasing them. Each also has the potential of giving rise to additional concerns that will be discussed below.
It is not clear in what way increased restrictions on foreign investments would address EV imports into Canada.
A. Section 53 of the Customs Tariff
The Government may impose a “surtax” on Chinese-origin EVs to “respond” to:
acts, policies or practices of the government of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada […]
As a preliminary matter, it may be observed that under Article 23.2(a) of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) under the WTO, a Member may not make a “determination” to the effect that “any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding. …” As a country whose national wealth is highly dependent on exports, Canada can ill afford a dilution of this important multilateral discipline.
More important, the principal reason for reconsidering a s. 53 approach is a question of procedure. In particular, the absence of one.
Canada’s trade remedy framework is not just effective and responsive; it is also procedurally sound. As noted above, engagement between stakeholders and affected interests is a signal feature of democratic policy debate about complex social and economic phenomena. In addition, the trade remedy framework has defined review and revision timeframes. It has multiple pathways for addressing economic concerns – and for removal of the measures. The measures are calibrated to address the specific harm found to exist. There are public interest13 considerations that may be taken into account in the calculation and imposition of measures. The review mechanisms, concepts, and approaches are tested and tried. Finally, because of the procedural safeguards, any measures imposed will be protected against political pressures.
B. Federal incentive adjustments
Adjusting the federal incentive gives rise to a significant risk of category error: are the incentives consumer- and climate-centric measures, or are they instruments of trade and industrial policy? In pure consumer and climate terms, how is Chinese state-supported excess capacity different from the panoply of “green” subsidies granted by the United States and the European Union to their EV producers and exporters? How are the adjustments to be calculated? Is there not a risk of double counting if the measures are imposed in tandem with s. 53 surtaxes?
We note in passing that direct producer subsidies – for example, to counteract Chinese excess capacity – benefit from international legal protection under the “producer subsidy” provisions of the GATT, whereas incentive adjustments risk attracting concerns under both the national treatment and most-favoured nation principles of the same agreement.
Recommendation: The proposed measures permit quick action by the Government outside the framework of procedural protections of Canada’s trade remedy mechanism. Although expedient, they give rise to multiple avoidable challenges. The Government should consider enlarging the options available to it.
V. Conclusion
We welcome both the Government’s initiative in moving to tackle Chinese state-supported excess capacity and in launching these consultations. The Government will likely receive submissions demanding “Action NOW”; the Government should resist “back of the napkin” solutions to persistent and large-scale problems of national industrial policy and multilateral trade law and institutions. In particular, Canada’s existing trade, industrial, and competition policy framework is adequate to the task. To ensure robust analysis, non-political decision-making, and effective procedural safeguards, measures in response to the identified concerns should be developed within existing mechanisms.
