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GMC Hummer EVs stack an assembly line at the General Motors Factory ZERO electric vehicle assembly plant in Detroit, Mich., on Nov. 17. If Canada fails to stop the made-in-U.S. EV credit it will have the option of challenging the U.S. measure at the World Trade Organization or under the USMCA.MANDEL NGAN/AFP/Getty Images

International Trade Minister Mary Ng flew to Washington on Wednesday to try to head off a slew of protectionist American measures, including looming tax credits for U.S.-made electric vehicles that could devastate auto assembly in Canada, as well as a doubling of softwood lumber duties announced last month.

Canadian consuls-general from some of this country’s diplomatic missions across the United States will also be in Washington to press the case, said Ms. Ng’s press secretary Alice Hansen, who described the visit as a “Team Canada” approach.

The minister’s opposition counterparts from the Conservative Party and the NDP accompanying her on the three-day trip said they think it’s time Canada negotiates a new softwood lumber deal with the United States. The last one expired in 2015.

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The trip will include meetings with U.S. senators where Ms. Ng will try to convince them of the pitfalls of tax credits for consumers who buy electric vehicles, or EVs, assembled in the United States. The meetings are taking place ahead of an expected Senate vote in December on U.S. President Joe Biden’s US$1.75-trillion Build Back Better bill that was passed in the House of Representatives last month and contains the vehicle incentives.

The Canadian and Mexican governments are concerned that the proposed U.S. tax credit could disrupt the future of EV production in their countries because auto companies might move their manufacturing to the United States.

“It’s a full-court press,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, also scheduled to meet with U.S. senators this week. “Last-minute peace talks are always better than starting a war no one can afford.”

The minister and Mr. Volpe are both making the case that not only are the tax credits a breach of the renegotiated NAFTA deal, which was renamed the United States-Mexico-Canada Agreement, but they will end up hurting American jobs because U.S. auto-parts suppliers will lose business from exporting to Canadian auto assembly plants. Michigan auto-parts suppliers ship US$9-billion a year.

Under the USMCA deal, auto makers need to source 75 per cent of their parts from Canada, the United States or Mexico. But if U.S. assemblers start building to meet the EV incentive, 50 per cent of the content must originate in the United States but the rest can come from anywhere, including offshore countries such as China and Malaysia.

If it passes the Senate, the legislation will eventually head to a committee where Mr. Volpe hopes lawmakers might insert a “Canada carveout by another name” at that stage.

If Canada fails to stop the made-in-U.S. EV credit it will have the option of challenging the U.S. measure at the World Trade Organization or under the USMCA.

The EV tax credits are backed by Mr. Biden, many congressional Democrats and the United Auto Workers union, and would disproportionately benefit Detroit’s Big Three automakers, which assemble their U.S.-made vehicles in union-represented plants.

Vehicles would have to be made in the United States starting in 2027 to qualify for any of the US$12,500 credit, which also includes a US$500 credit for a U.S.-made battery.

The EV subsidies are among the latest in a series of contentious American measures, which also include the hike in financial penalties on Canadian softwood and a campaign by Michigan to shut down Enbridge’s Line 5 pipeline. Canada also halted the export of Prince Edward Island potatoes to the U.S. on Nov. 2 after being warned they would be blocked over a fungus despite no evidence the parasite has showed up in the market 20 years after it was discovered.

Conservative transport critic Melissa Lantsman accused Prime Minister Justin Trudeau of failing Canadians despite a visit with Mr. Biden two weeks ago. “He lost the fight on lumber. He lost the fight on farmers. He’s about to lose the fight [for] auto workers and he didn’t even bother to put up a fight for the workers in the energy sector,” she said during Question Period. “The Americans are walking all over this Prime Minister.”

Mr. Trudeau rejected her charges and said he is standing up for Canadian industry just as he fought for Canadian steel and aluminum producers. In 2018, Canada slapped tariffs on U.S. aluminum and steel imports after the United States penalized Canadian shipments of the same commodities.

Last week, the U.S. Department of Commerce announced a new duty rate of 17.9 per cent for most Canadian softwood producers. Most Canadian producers are currently paying a duty rate of 8.99 per cent for shipments south of the border.

“My hope is always that we will find a durable solution to this ongoing trade battle,” Susan Yurkovich, president of the BC Lumber Trade Council, said in an interview on Wednesday. “The U.S. is not able to supply its own market.”

The long-running trade war over softwood lumber dates back to 1982. This latest clash marks the fifth round in the cross-border fight. The U.S. Department of Commerce started imposing duties on Canadian lumber in April, 2017, with the tariffs fluctuating since then for countervailing duties and anti-dumping levies.

“It’s not about policy, it’s about protectionism,” Ms. Yurkovich said. “It’s about the U.S. industry trying to use their trade laws to keep their competitors out of the market and to artificially inflate prices.”

Randy Hoback, the Conservative critic for international trade who is accompanying Ms. Ng, said Canada is looking to recruit allies on softwood in the U.S. such as American home builders worried about the impact of the doubled duties on inflation.

He said Canada should sign a new softwood lumber deal to manage bilateral timber trade as a means of bringing peace to the matter.

“You’ve got a United States that just thinks about the United States,” he said, saying “that goes back to Donald Trump” or even earlier.

NDP MP Daniel Blaikie, also on the trade trip, said Canada should be trying to reach a new softwood agreement. “I think we should be trying to get toward a deal.” He nevertheless noted that Canada has a strong legal case that softwood lumber is not subsidized as the United States alleges. The NDP’s conditions are that it’s fair, transparent to the benefit of Canadian workers and the Canadian softwood lumber industry.

He said he’d also like Canada to develop a new national automotive strategy to boost the industry rather than an “ad hoc approach.”

British Columbia is the province with the highest lumber output in Canada, accounting last year for 40 per cent of the country’s production.

The tariffs have resulted in lumber becoming more expensive for consumers and home builders. As well, lumber prices have been rallying after B.C. flooding in mid-November clogged up supply chains and reduced the amount of lumber available.

“Prices moved higher due to continued rain, floods and mudslides in British Columbia,” CIBC World Markets Inc. analyst Hamir Patel said in a research note.

The U.S. lumber lobby argues that provincial governments provide unfair subsidies to Canadian producers and alleges that softwood is being dumped below market value in the United States. Ottawa and provincial governments counter that they repeatedly won cross-border trade arguments in the past through various appeal processes in the lumber battle.

With a report from Reuters

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