In a December 10 letter sent to several senators in the United States, Canada threatened to impose tariffs and suspend certain parts of the Canada-United States-Mexico Agreement (CUSMA) due to the Biden administration’s proposed electric vehicle tax credit.
A copy of the letter was published by Politico. It was signed by Canada’s Deputy Prime Minister and Minister of Finance Chrystia Freeland and Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, and sent to eight U.S. senators that included both Democrats and Republicans.
The letter outlined Canada’s concerns with the electric vehicle tax credits proposed by the U.S. President Joe Biden in his Build Back Better Act. It states that the plan is discriminatory toward Canada, Canadian workers, and the country’s automotive industry.
The framework’s electric vehicle tax credit aims to lower the cost of an EV that is “made in America with American materials and union labor” by $12,500 for a middle-class family. A number of automakers already objected to the plan, and Mexico is considering the possibility of imposing tariffs on the U.S. as well, should the proposal pass as is.
Freeland and Ng note that the proposed electric vehicle tax credit violates U.S. obligations under the trade agreement. “The proposal is equivalent to a 34 per cent tariff on Canadian-assembled electric vehicles. The proposal is a significant threat to the Canadian automotive industry and is a de facto abrogation of the USMCA,” Freeland and Ng stated in the letter.
They also said that, if the plan passes as is, Canada will launch a dispute settlement process under the trade agreement and will apply tariffs on American exports “in a manner that will impact American workers in the auto sector and several other sectors of the U.S. economy.”
They would also “consider the possible suspension of (CUSMA) concessions of importance to the U.S. in return.” Those concessions could include suspending CUSMA dairy tariff-rate quotas, and delaying the implementation of the trade agreement copyright changes.
On December 14, the Trillium Automobile Dealers Association (TADA) said it also sent a letter to U.S. Senate Majority Leader Chuck Schumer and Senate Minority Leader Mitch McConnell urging them to reject discriminatory tax credits for Canadian-assembled EVs. They said the proposed tax credits “will destroy the successful North American auto supply chain Canada and America have built since signing the Auto Pact in 1965.”
“The TADA believes EV tax credits should not discriminate against Canadian-assembled vehicles. Our integrated North American supply chain creates jobs on both sides of the border and should be protected,” said Frank Notte, Director of Government Relations. “We are hopeful the U.S. Senate will reject these discriminatory EV tax credits and force amendments exempting Canadian-assembled vehicles.”
He said Ontario new car dealers do not want a trade war that leads to higher prices for new vehicles, and hopes the senators will reject the proposed tax credit plan and “help focus Congress and the President on the main goal–putting EVs on the road to reduce emissions,” said Notte.
Biden’s bill passed in the U.S. House but is pending approval in the Senate, where it is unlikely to pass without modifications.
