Dealing with Canadian “retaliatory” tariffs: A primer for importers
By Michelle Chai & Graeme Hiebert
In response to the 25% tariffs levied on virtually all Canadian goods by the United States, Canada has announced United States Surtax Order (2025-1) will be effective immediately.[1] This imposes a 25% tariff on a long list of goods imported into Canada from the United States.[2]
This announcement makes for an uncertain trade landscape, and importers are encouraged to consider if a change in the country of origin of their goods imported into Canada could avoid certain tariffs. This may include considerations around supply chains, and the level of processing taking place at each step. Further, importers can consider alternative tariff classifications[3].
How can Canadian importers determine if goods are “Made in the USA”
A bit of background first – when goods and products are imported into Canada, importers declare the origin, tariff classification, and value for duty of their goods and products. Importations are subject to scrutiny by the Canadian Border Service Agency (CBSA).
A good’s country of origin is dictated by the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations[4] (the “Origin Regulations”). One of the main purposes of the Origin Regulations are to determine the country of origin, which then determines whether a preferential (or in this case, “retaliatory”) tariff would apply.
The Origin Regulations set out how a good’s country of origin is to be determined. The analysis begins with more easily classified goods, including those wholly obtained or produced in the country of origin, or goods which are produced exclusively from domestic materials.
However, consider the example in A & G Inc. (Alstyle Apparel) v. Canada Border Services Agency[5], in which the goods at issue were clothing items that were processed in the US and Mexico. All components of the goods (i.e. the cotton yarn) were produced in the US, and then the fabric was cut into the component pieces of each garment. Those component pieces were then bundled and shipped to Mexico for assembly into the final garment, before import into Canada.
The Canadian International Trade Tribunal (CITT) found that the goods were not “wholly obtained or produced” in either country. They also were not “produced exclusively from domestic materials”, as the production of the garments was situated in Mexico, and there were no domestic materials from Mexico involved in the end product.
The CITT also noted that the “tariff shift rules” did not apply. These rules state that when a good undergoes processing that changes the tariff classification[6], then its country of origin becomes the country in which this tariff shift occurred. (See below for discussion of “processing”).
The CITT ultimately found that the assembly in Mexico was “simple assembly”, and that the country of origin of the component parts would therefore determine the country of origin of the good itself – in this case the US.
Similar to “simple assembly” are the related concepts of “minor processing” and “same condition processes”.
“Minor processing” is intended to capture when a good undergoes a small amount of processing that does not fundamentally alter the character of the good. For example, diluting with water, cleaning, painting, trimming or cutting off small amounts of excess material; or washing, repairing, or sterilizing are all considered “minor processing”. If goods undergo only minor processing in a particular country, that country will generally be disregarded when determining country of origin.
“Same condition processes” are processes which do not materially or fundamentally alter the characteristics of the imported good. Examples include dilution, painting, or packaging/repackaging into measured doses (for example, importing sugar in bulk and then packaging into individual serving size packets).
In some instances, if a good is imported into Canada, and only undergoes a “same condition process” or “minor processing”, it may be deemed to be in the same condition at the time of exportation as it was when originally imported. Canadian importers (and exporters) will want to be aware of this, as they may be able to claim a full drawback (i.e. refund) of any customs duties they paid on importation of the good.[7]
We know these are complicated times, and things are changing quickly. Importers should consider seeking the advice of Canadian customs brokers and trade lawyers prior to importation of their goods and products into Canada. For more information, please contact the authors.
This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact the authors.
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[1] https://www.cbsa-asfc.gc.ca/publications/cn-ad/cn25-10-eng.html
[2] https://orders-in-council.canada.ca/attachment.php?attach=46877&lang=en
[3] see Part I and II of our earlier series.
[5] 2009 CanLII 28049 (CA CITT)
[6] See Schedule III to the Origin Regulations
[7] https://www.cbsa-asfc.gc.ca/publications/dm-md/pdf/d7-4-3-eng.pdf