The impact of possible tariff changes on Canadian importers and strategies for consideration (Part I)
By Michelle Chai and Graeme Hiebert
On January 20th, 2025, Donald Trump will be inaugurated as President of the United States. He has promised to swiftly impose tariffs on all Canadian goods of up to 25%. He has also promised increased tariffs on Mexican and Chinese goods. Commentators agree it is difficult to know what Trump will proceed with, or what mechanism(s) he will use to impose such tariffs.[1] Nevertheless, commentators agree Trump’s comments should be taken seriously.
The Canadian federal and provincial governments have recently issued a statement that they will “work together on a full range of measures to ensure a robust response to possible US tariffs.” It has been reported that Canada has drawn up a list of US-manufactured items that it would hit with retaliatory tariffs if President-Elect Donald Trump decides to levy tariffs against Canadian goods.[2]
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).[3]
A common battleground between importers and the CBSA, therefore, is over tariff classifications – with importers electing classifications with lower tariff rates, and the CBSA seeking classifications with higher tariff rates.
Tariff classifications, established by the Customs Tariff, SC 1997, c 36, are set out in detail in the Canadian Border Services Agency Departmental Consolidation of the Customs Tariff.[4] Consisting of 21 distinct sections, each with multiple headings, and sub-headings, the Customs Tariff seeks to provide an appropriate classification for essentially any product that could be imported into Canada.
In the event of retaliatory Canadian tariffs, importers of goods into Canada may want to consider methods by which they can avail themselves of alternative tariff rates.[5]
Utilizing alternative tariff classifications
Choosing a justifiable tariff classification that attracts lower tariff rates is not a straight-forward exercise. It requires a highly fact-dependent inquiry into the nature of the goods being imported, as well as a close reading of the General Rules for the Interpretation of the Harmonized System, classification headings, and associated section and chapter notes.
Certain headings may not be immediately obvious. For example, in Charoen Pokphand Foods Canada Inc., the issue was whether a frozen wonton soup product should be classified as a “stuffed pasta, whether or not cooked or otherwise prepared” which had an 11% tariff (the CBSA position), rather than the perhaps more intuitive heading “soups and broths and preparations therefor” which had a 6% tariff (the importer’s position).[6] The Canadian International Trade Tribunal (CITT) agreed with the CBSA, and classified the goods as “stuffed pasta” in part based on the volume of the wontons.[7]
For goods consisting of multiple parts, importers may consider importing the component parts separately if one of those components would attract a lower tariff rate when imported on its own. In Atlantic Owl (PAS) Limited Partnership, the imported good was a vessel. On that vessel, were two smaller remotely operated vehicles (ROVs), which were owned by a company unrelated to the vessel’s owner. However, the vessel and the ROVs had been imported together, under one single tariff classification, as an “other vessel”.[8]
It was held that since they were imported together, the vessel and ROVs fell under the heading “Other vessels”, attracting a tariff of 25%. It was not contested that had the ROVs been imported separately from the vessel, then they would have fallen under the heading “Other machines and mechanical appliances”, attracting a tariff of 0%.
In Part II we will explore other factors – such as the appearance, best use, marketing, and distribution of products – which may impact tariff classification, and provide some take-aways for Canadian importers.
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] If President-Elect Trump proceeds with sweeping country-wide tariffs targeted at Canada and Mexico, these may be a violation of the United States-Mexico-Canada Agreement (USMCA).
[2] https://www.bnnbloomberg.ca/business/economics/2025/01/15/canada-readies-tariffs-on-105-billion-of-us-products-if-trump-hits-first/
[3] The CBSA has the right to redetermine the origin, tariff classification, value for duty or marking determination of any imported goods at any time within four years after the date of determination.
[4] Tariffs in Canada, like most trading nations including the US, are also governed by the “Harmonized System”, advanced by the World Customs Organization and used by over 200 countries including the USA. This system sets out the tariff classifications of different types of goods.
[5] The application, and determination of US tariffs on goods imported into the USA, would be governed by US law and therefore advice should be sought from US customs brokers and trade lawyers.
[6] Charoen Pokphand Foods Canada Inc. v. CBSA, AP-2021-008. Aff’d Charoen Pokphand Foods Canada Inc. v. Canada (Border Services Agency), 2024 FCA 101.
[7] 76% of the product (by weight) consisted of shrimp wontons, the wrapping of which was made from a dough containing over 25% (by weight) of cooked wheat flour.
[8] Atlantic Owl (PAS) Limited Partnership v CBSA, 2020 CanLII 36304 (CA CITT)