Canada asks U.S., Mexico to clamp down on offshore aluminum

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Canada says it’s talking to NAFTA partners – in particular, Mexico – about stepping up monitoring of offshore imports of aluminum in order to determine if countries such as China are dumping product in the free-trade zone.

The Canadian and U.S. aluminum industries have repeatedly sounded alarms about a loophole in the trilateral trade deal that will replace NAFTA, which is now called the United States-Mexico-Canada Agreement (USMCA). They say it allows countries such as China and Russia to flood the free-trade area with cheap aluminum depressing prices and threatening manufacturing jobs.

On Wednesday Deputy Prime Minister Chrystia Freeland announced the Bloc Québécois caucus had agreed to support the minority Liberal government in passing the legislation to implement the new Canada-U.S.-Mexico trade agreement, which has been ratified by the U.S. and Mexico. The NDP had already lent the Liberals its support but the Bloc Québécois support is expected to make passage of the legislation even faster.

Ms. Freeland told Bloc Québécois leader Yves-François Blanchet that Canada is asking the U.S. and Mexico for help boosting the monitoring of offshore imports into the free-trade zone. Quebec is home to nearly all of Canada’s aluminum production.

Last year, as part of the deal where the U.S. lifted steel and aluminum tariffs on the two countries, Canada and Mexico agreed to set up surveillance systems to monitor imports of steel and aluminum to signal if offshore shipments were surging. Canada’s system began monitoring imports as of September, 2019.

Mark Rowlinson, assistant national director for the United Steelworkers union in Canada, said his organization believes Mexico has not put in place sufficient systems to monitor offshore aluminum shipments. United Steelworkers is the largest union representing steel and aluminum workers in Canada.

He welcomed the deal between the Bloc Québécois and the Liberals, but said Canadians should remain worried about the prospect of unfair overseas competition.

Mexico, he said, has “a growing auto sector that wants to import cheap aluminum from offshore" producers.

“China does have significant interests in the aluminum sector in Mexico ... so there is also a Chinese interest in importing larger and larger amounts into the Mexican economy,” Mr. Rowlinson said.

In her letter, Ms. Freeland said she’s also begun talks with Robert Lighthizer, the U.S. Trade Representative, “on the need for increased Mexican control over foreign aluminum.” She said she’s pleased to see the latest proposed U.S. federal government budget includes dedicated funds for controlling aluminum imports.

She told Mr. Blanchet that Canada is prepared to collaborate with the U.S. and Mexico to quickly identify and respond to “threats of trans-shipments of offshore aluminum," meaning the practice of moving a good to one country from another via a third country in order to evade tariffs. She said trilateral meetings on the matter will take place twice yearly.

Ms. Freeland said she talked to Mexico’s ambassador to Canada, Juan Jose Gomez Camacho, about the initiative Wednesday morning. The envoy could not immediately be reached for comment Wednesday.

In the letter, she also pledged that if there is evidence of serious effort by overseas producers to circumvent tariffs then Canada will press the U.S. and Mexico to amend the USMCA deal to include a “melted and poured” in North America amendment in the agreement.

The USMCA trade deal requires 70 per cent of the steel and aluminum used in North American auto production to be purchased in Canada, the U.S. or Mexico. A last minute changes to the agreement in 2019 included a provision that steel must be “melted and poured” by primary steelmakers in North America to receive preferential tariff treatment. There was no such tightened requirement for aluminum and Mexico opposed adding one.

Aluminum producers are worried that the loophole will allow a growing amount of aluminum to enter, particularly through Mexico, which has no aluminum smelting capacity of its own and relies on imports.

The American Primary Aluminum Association has pointed out the Aluminicaste Fundicion de Mexico, one of the largest casting facilities in Mexico to form aluminum into products, is part of the China Zhongwang Holdings empire of companies. The founder of China Zhongwang was indicted in 2019 by the U.S. government on charges that he evaded nearly US$2-billion in tariffs as part of a conspiracy to smuggle massive quantities of aluminum into the U.S.

Since 2016, the Wall Street Journal has been reporting on stockpiles of aluminum built up around the world, including in a Mexican desert near the U.S. border, that at one point comprised 14 per cent of global inventories of the metal. The Journal reported that money from state-run Chinese companies was used to help finance the buildup of this stockpile that has criss-crossed the globe, depressed prices and sparked a criminal investigation in the U.S.