When the Canadian government levied new tariffs on U.S. imports beginning July 1, it broke not only with its core free trade convictions — but also with years of Canada-U.S. support for open borders.
The Canadian countermeasure tariffs are a response to tariffs imposed by the U.S. government on imports of Canadian-originating steel and aluminum products. The U.S. tariffs were introduced under rarely used legislation allowing tariffs when national security is at stake. However, observers claimed that the “national security” justification is a pretext. In reality, they say, the U.S. government is using the tariffs as leverage during intense NAFTA negotiations between the two countries — similar to U.S. President Donald Trump’s threat to impose a 25% tariff on Canadian auto imports.
The Canadian tariffs impact a variety of U.S. goods:
- Steel products - 25% surtax
- Aluminum products - 10% surtax
- Other specified products – 10% surtax
To assess the impact on their business, Canadian business leaders need to ask three basic questions.
Do the tariffs apply to these goods?
Most U.S. imports do not attract these tariffs. In fact, even many steel and aluminum imports are not affected. The Canadian government has listed all affected tariff classifications, down to the eight-digit tariff level. These items are highly specific. For example, item 7207.20.00 covers steel products “containing by weight 0.25% or more of carbon.” Item 7610.10.00 comprises aluminum “doors, windows and their frames and thresholds for doors.”
Businesses need to ensure that they classify their imports correctly, to avoid two opposite outcomes. On the one hand, incorrectly including a product in a classification subject to the tariffs will incur unnecessary duties. Conversely, importers who mistakenly believe tariffs do not apply to their goods may face penalties. In extreme cases, the mistake could affect their importer rating and delay their shipments at the border.
Where do my goods come from — legally speaking?
The new tariffs only apply to goods imported from the U.S. However, determining “U.S. origin” under Canadian law is often complicated, pushing professionals to peer through the interlocking supply chains of modern business. Bottom line: the act of importing a product from the U.S. does not necessarily render it of U.S. origin. As a result, the legal definition of U.S. origin requires businesses to know the details of their operations. For example, goods produced in Canada could be viewed as originating in the U.S. if shipped south of the border for further processing.
How am I using the imported goods — and why am I buying American?
The government will not levy tariffs on certain goods even if the tariffs apply at first glance. In exempting these goods, the government requires information about the business and the imports.
To explore this option, Canadian businesses should consider three programs offered by the CBSA.
Duty Deferral Program
The Duty Deferral Program exempts companies from tariffs up-front, at the time they import the goods. To qualify, the business needs to intend either to export the goods in the same condition or to use them to manufacture goods that will be exported.
Duty Drawback Program
This program refunds duties after they have already been imported and the tariff paid. Similar to the deferral program, it applies to imported goods if they are exported in the same condition or are used to manufacture goods that are later exported. It also exempts goods that are destroyed because they are obsolete or surplus.
Duty Remission Program
While less popular than it once was, the Duty Remission Program can also provide businesses with tariff relief, either before or after the goods are brought into the country. Companies most often qualify when the goods cannot be sourced domestically. To qualify, companies need to provide the government specific, detailed information on the company and the product.
Companies need to take ownership
Canadian businesses facing new tariffs need to take immediate action. While many will seek non-U.S. suppliers to mitigate the uncertainty, companies should first explore less dramatic options. No matter the road chosen, though, business leaders need to take ownership of the solution. With a timely response and accurate information, they can work within the Canadian customs system to limit costs and ensure compliance.
Watch this webinar to explore how you can manage the impact of Canadian tariffs on products you bring into Canada.
Contact us to learn more about our customs consulting services.