1. Determine tariff applicability

To understand whether your goods are subject to Canadian tariffs on U.S. imports, businesses must do the following:

  • Assess tariff classifications: Verify the Harmonized System (HS) classification of imported goods. Misclassification can result in unnecessary tariff payments. There may be alternative classifications under which goods are not subject to tariffs. Explore the full list of tariff items and descriptions of affected products here.
  • Evaluate country of origin: The Canadian surtax order applies to goods originating in the U.S. as defined by the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations. The surtax applies to U.S. origin goods imported for commercial and personal purposes, even when exported from a country other than the U.S. to Canada. Businesses should assess whether their products genuinely qualify as U.S. origin or if they originate from another country, potentially exempting them from tariffs.

2. Understand customs valuation rules

Some importers may consider lowering the declared value of their imports to reduce duties. However, customs valuation rules under the Customs Act are stringent and importers must approach such strategies with extreme caution.

  • Transaction value method: The primary method used to determine the value for duty is the "transaction value method," which is based on the "price paid or payable" for goods. This includes all direct and indirect payments made to the vendor. If amounts are paid separately from commercial invoices, but can be attributed to the goods, they must be added to the value for duty.
    • In cross-border sales transactions based on the transaction value method, the starting point is typically the invoice price, which is then subject to various adjustments, either up or down, depending on the nature of adjustments.
    • Notable upward adjustments include commissions, packing costs and charges, and royalty and license fees. The notable downward adjustment is for certain transportation costs relating to the transport of the goods from the plan within the country of export from which the goods are shipped directly to Canada.
    • Discounts agreed upon before importation may be considered, while post-importation discounts can only be applied if agreed upon in writing before the import.
  • Risks of under-valuation: Improper valuation can expose businesses to penalties and back duties. Valuation issues are especially complex for related-party transactions (e.g., U.S. parent companies selling to Canadian subsidiaries). Changes in valuation for customs duty purposes may have tax consequences. Legal advice is strongly recommended before making any adjustments to declared values.

3. Leverage trade incentive programs

Several trade incentive programs can help businesses reduce the impact of tariffs:

  • Duty Drawback Program: Offers refunds on duties paid for imported goods that are:
    • Exported in the same condition, or
    • Consumed or expended in manufacturing and subsequently exported.
  • The Obsolete or Surplus Goods Program provides refunds for goods that are destroyed or declared obsolete and will not enter the Canadian market.
  • Duty Deferral Program: Allows importers to defer duty payments on goods that will eventually be exported, providing cash flow benefits and reducing upfront costs.
  • Important: Goods exported to the U.S. or Mexico may face restrictions under CUSMA. Careful assessment will be required to determine whether goods destined for the U.S. or Mexico can utilize Canadian trade incentive programs.

4. Submit remission requests

The Department of Finance has established a formal process for tariff remission on U.S. imports under two circumstances:

  1. Lack of domestic supply: Importers must demonstrate that equivalent goods are not reasonably available from Canadian producers.
  2. Exceptional circumstances: If tariffs cause disproportionate economic harm, such as severe financial distress, supply chain disruptions, or threats to critical industries.

The Department of Finance assesses applications on a case-by-case basis, considering economic impacts and consulting domestic producers when necessary.

  • Submission requirements:
    • Detailed product descriptions, including HS codes
    • Documentation of sourcing efforts from Canadian suppliers
    • Financial impact analysis
    • Supporting contracts, invoices, or expert opinions

Only Canadian-registered companies are eligible to apply. For submission templates and detailed guidelines, consult the Department of Finance website.

5. Review contracts and purchase orders

Importers should carefully review their contracts and agreements to determine:

  • Responsibility for duties: Contracts may specify whether the buyer or seller is responsible for paying tariffs.
  • Escalation clauses & change of law provisions: Clauses that allow price adjustments due to changes in tariffs or other trade regulations should be identified and leveraged.
  • Force Majeure clauses: These may provide relief if tariffs significantly disrupt the supply chain or economic feasibility of transactions.
  • Negotiation opportunities: Importers may negotiate contract modifications to share the burden of tariffs with suppliers or pass on some costs to end customers.

Questions? We have answers

Navigating the complexities of Canadian tariffs on U.S. imports requires a multifaceted approach, from verifying tariff classifications and customs valuations to leveraging trade programs and reviewing contractual obligations. Businesses should seek legal guidance to ensure compliance with customs laws while minimizing financial exposure. By proactively addressing these areas, companies can better withstand the pressures of the ongoing trade conflict.

Members of our International Trade & Customs and Government Affairs teams are closely monitoring this situation and welcome the opportunity to discuss how your business may be impacted by tariffs. For further information or assistance, please contact us directly.