The impact of possible tariff changes on Canadian importers and strategies for consideration (Part II)

By Michelle Chai and Graeme Hiebert

This is the second in a two-part Thought Leadership series. To read Part I, click here.

Appearance, design, best use, marketing and distribution

While the composition of a product will have a significant effect on its tariff classification, other features about the product and how it is presented may be indicative of its proper tariff classification as well.

The Federal Court of Appeal in Keurig Canada Inc. affirmed the longstanding framework first established in Regal Confections Inc., which states that the “appearance, design, best use, marketing and distribution” of a good will be indicative of its proper tariff classification.^[1]

In Regal Confections Inc., the issue was the classification of products as toys or confectioneries.  The products were candy-filled miniature baby bottles, clear plastic toy ducks intended to be filled with candy before sale, and blister cards containing a motorized candy dispenser and packages of PEZ candy. All of these products had some play value, but the baby bottles and ducks were not considered to be toys because their play value was secondary to their principal function as confectionery or containers for confectionery. The PEZ product was found to be a toy because the dispenser had play value that was “significantly more important than the included confectionery”.^[2]

Importers should therefore consider what a product is, as well as how it is presented, packaged, and marketed, when determining potential tariff classifications.

Residual categories

Another common theme in recent decisions is whether a “specific” or “residual” heading ought to apply to a particular good.

In B. Erickson Manufacturing Ltd., the appellant importer of various models of ratchet tie-down straps, argued that the goods should be classified as “machines and mechanical appliances having individual functions, not specified or included elsewhere in this Chapter”. This “residual” classification did not attract any applicable tariff.^[3] This argument was rejected, with the CITT finding that the more specific heading of “Vices, clamps and the like”, subject to a tariff rate of 6.5%, was more appropriate.  In making this determination, the CITT referred to dictionary definitions of the word “clamp”, which captured “articles designed to seize, bind, hold, constrict, compress or pinch objects together so as to hold them firmly in their relative position”.^[4]

Similarly, in Keurig Canada Inc., the appellant sought to have their goods classified as “other electro-thermic appliances”, with a tariff rate of 6.5%. The CITT ruled instead that the goods were clearly “coffee makers”, with a tariff rate of 9%.^[5]

Conversely, in Stanley Black & Decker Canada Corporation, the appellant sought to have their goods classified as “flashlights”, which had a 0% tariff rate. They successfully appealed the determination by the CBSA who had classified the goods as “other lamps”, which had a tariff rate of 7%. The CITT found that the goods were “clearly flashlights within the ordinary meaning of that word”, relying again on dictionary definitions.^[6]

The above decisions reveal a strong preference for classifying goods narrowly wherever possible, rather than relying on residual categories of tariff classifications. This is consistent with Rule 3(a) of the General Rules for the Interpretation of the Harmonized System, which instructs that “The heading which provides the most specific description shall be preferred to headings providing a more general description.”

Even for novel or innovative goods, access to residual classifications may be limited. The CITT in Keurig Canada Inc., stated that “the Harmonized System cannot take into consideration each and every innovative product that comes onto the market”. This was affirmed by the Federal Court of Appeal, who also added that “[T]he Harmonized System conceives of the possibility of overlap between goods or tariff items or goods not fitting precisely within a tariff item, and generally instructs to look at the primary use of the good, rather than resorting to a residual classification.”^[7]

Key lessons

Importers seeking to make use of alternative or residual tariff classifications may benefit from doing some lateral thinking about what their imported product actually is.

Close consideration of an imported product’s composition may reveal strategies for alternative tariff classifications. If a good contains parts which, imported on their own, might fall under a different tariff classification and attract a lower MFN tariff rate, then importers to Canada may want to consider importing those parts separately and then assembling them within Canada. Importers should review Rule 2(a) of the General Rules for the Interpretation of the Harmonized System, applicable to unfinished or incomplete articles, when considering this.

Alternatively, importers may also wish to consider how their imported product is presented to consumers. Importers may want to consider whether a product could be re-packaged, distributed, or marketed differently to the effect that it could be categorized under an alternative tariff classification attracting a lower tariff rate.

Finally, prior to importation of their goods and products into Canada, importers should consider seeking the advice of Canadian customs brokers and trade lawyers.

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] Keurig Canada Inc. v CBSA, 2022 FCA 100, referring to Regal Confections Inc. v. Canada (Deputy Minister of National Revenue – M.N.R.), [1999] C.I.T.T. No. 51 (Appeal Nos. AP-98-043, AP-98-044 and AP-98-051)
[2] HBC Imports (Zellers Inc.) v. Canada (Border Services Agency), 2013 FCA 167
[3] B. Erickson Manufacturing Ltd. v. Canada (Border Services Agency), 2023 FCA 37
[4] Ibid at para 44.
[5] Keurig Canada Inc. v CBSA, 2022 FCA 100
[6] Stanley Black & Decker Canada Corporation v. CBSA, AP-2022-009 (CITT)
[7] Keurig Canada Inc. v. Canada (Border Services Agency), 2022 FCA 100 at para 35.