Canada launches consultation to implement possible roadblocks on Chinese EV imports

July 16, 2024

On July 2, 2024, Canada launched a consultation regarding potential measures that may be taken in response to Chinese imports of electric vehicles (EVs) and certain EV parts. Subject to the consultation, Canada may ultimately align itself with the United States and the European Union, which have each taken measures directed against the importation of Chinese EVs and EV parts.

China is currently the largest manufacturer and exporter of EVs in the world, producing approximately 70% of global EV batteries and 60% of EVs. Chinese policies, including extensive state subsidies, have helped bolster China's position in the EV industry. In the context of China's global EV standing, the consultation launched by Canada is an initiative that is ultimately aimed at safeguarding Canada's EV industry from Chinese imports.

With the cautionary tale of other industries that have become dominated by Chinese imports to the detriment of local options, measures meant to curb the influx of Chinese EVs and EV parts have been implemented by the EU, the US, and now potentially Canada. The US has imposed a 100% tariff on all Chinese-made EVs and a 25% duty on certain EV parts and components, while the EU has implemented its trade remedy regime, which has resulted in duties of up to 38.1% on certain Chinese manufacturers. Meanwhile, Canada's consultation announcement notes that a policy response is necessary to prevent a diversion of Chinese EVs to Canada resulting from the US and EU's imposition of tariffs on Chinese EVs.

Potential outcomes following the consultation period

The Canadian consultation announcement document outlines the following potential outcomes of the consultation:

• Surtax on Chinese-made EVs under Section 53 of the Customs Tariff: The imposition of a surtax on Chinese EVs pursuant to s.53 of the Customs Tariff. A surtax is a duty imposed by an Order in Council to which imported goods may be subject. More specifically, s.53 of the Customs Tariff can be used to impose a surtax, in addition to customs duties, on any goods in response to acts by the government of a country that adversely affect trade in Canadian goods or services.
• Adjustments to the federal EV rebate program: Potential modifications to the Incentives for Zero-Emissions Vehicles Program (IZEV) are being considered. Introduced in May 2019, IZEV offers eligible consumers an incentive of up to CA$5,000 for the purchase or lease of a zero-emission vehicle. However, the IZEV incentivizes the importation of Chinese-made Teslas, which are currently subject to a 6% import tariff.
• Foreign investment restrictions: Implementing measures to prevent Chinese companies from gaining unfair advantages by implementing increased foreign investment restrictions.
• Cyber and data security issues: Implementing measures to prevent and mitigate information and communications technology and services (ICTS) vulnerabilities related to Chinese EVs, components and related technology, such as charging stations.
• Any other reasonable measure suggested during the consultation.

Potential retaliation by China

China may retaliate against any potential Canadian unilateral measures aimed at Chinese EVs and components. Retaliatory measures could include targeting Canadian goods being imported into China with tariffs, or a WTO challenge.

Chinese companies with operations in Canada that are directly impacted by potential Canadian measures may contemplate an investment dispute against Canada under the Canada-China bilateral investment treaty.

Given the potential for retaliation, other mechanisms for tariff impositions, such as safeguards or countervailing duty investigations, may be preferable options that are more commonly used by Canada and other countries consistent with the WTO.

Implications for your business

Any business that is involved in the EV industry and supply chain is encouraged to submit comments to the Government of Canada on potential protective measures that may be imposed against Chinese imports. Comments received through the consultation process will help inform the Government in the strategy and measures it may ultimately seek to implement.

The Dentons trade and battery teams are following this issue closely. If you have any questions or need more information on this topic, please contact the authors, Ali Amadee, Sean Stephenson or Anoosh Loertscher. We would also like to thank our summer student, Ana Grubac, for her contributions to this insight.