Canadian companies that import goods from the U.S. may find themselves paying more for certain raw materials, food items and manufactured products after July 1, 2018. That’s the date set by the Government of Canada for the implementation of Canadian tariffs on an itemized list of U.S.-originating products. The list will be finalized in mid-June, following a 15-day consultation period between the government and Canadian business.
Canada is using the tariffs as a retaliatory measure in response to U.S.-imposed tariffs on Canadian steel and aluminum. On May 31, 2018, U.S. Commerce Secretary Wilbur Ross announced an end to an exemption for Canada and other trading partners, immediately implementing a 25% tariff on Canadian steel and 10% tariff on Canadian aluminum sold to U.S. customers.
Unlike the U.S. tariffs, which are industry-specific, Canada’s proposed tariffs will cover a wider range of goods. Canada’s countermeasures will be levied against $16.6 billion worth of U.S. imports, roughly the value of Canadian goods affected by the U.S. steel and aluminum tariffs.
The Canadian tariffs include tit-for-tat taxation on the same raw aluminum and steel products identified by the U.S. But they also extend to diverse items such as “prepared meals, of bovine”, herbicides, cucumbers and gherkins, coffee, and aluminum structures such as manufactured doors.
Determining where a product comes from can be difficult to define in trade law, and rules of origin are often open to interpretation. Some of the products your firm imports from the U.S. may originate from other countries, for example. But if they’re modified or even repackaged in the U.S., they could be subject to Canada’s new surtax, due to the broad interpretation of “origin” used by the Canadian government in this case.
“The first thing Canadian companies need to do is find out if products they’re buying from the U.S. are on that list,” says Brenda Swick, a partner with the international trade and investment law firm Dickinson Wright.
The tariffs are expected to have an impact on Canadian companies that sell internationally as well. Canada imports approximately USD $300 billion from the U.S. each year. The Canadian tariffs are targeting around $16.6 billion of that, which is a small amount. Many Canadian firms that sell abroad are tightly integrated into global and North American supply chains, meaning components of products and partially-completed goods crisscross the Canada-U.S. border several times before reaching the final buyer. Importing to export is common practice.
Companies have until June 15th to make suggestions to the Department of Finance in writing.
“Find out if the product you’re importing may be subject to these proposed tariffs,” Swick advises. “If it is, and you don’t want it there, you have an opportunity to make a strong case to the Canadian government to have it removed.”
Swick also recommends having your U.S. supplier lobby their own senators and representatives to have the products removed.
The Department of Finance is implementing the surtax, which will be administered by Canada Border Services.
“The border agents will be hunkered down and watching for these items,” says Swick. “They’re running the system and they’re going to tag all items that fall under these tariff classifications.”
The onus is on the importer to pay the tariffs. “If the good you’re purchasing comes across the border into Canada and it falls on that list, you will be assessed with a 25% surtax on steel or 10% on other items,” says Swick. “You’ll get a detailed adjustment certificate and you will have to pay 10% to 25% more for that order.”
Changes in the tariff landscape are a great opportunity to review contracts with your suppliers, says Swick.
“The importer of record is stuck with the tax,” says Swick. “Review those contracts and see if you can make someone else the importer of record.”
Even the U.S. supplier can be a non-resident importer, if you negotiate that into the contract.
“They would probably pass down the cost of the tax to you, the buyer, anyway,” says Swick. “But it’s the importer that’s assessed and they will handle the administrative costs.”