Gajan Sathananthan, Chelsea Rubin, Riyaz Dattu
Jun 29, 2018
In our last international trade brief, we discussed the countermeasures proposed by Canada in response to the U.S. steel and aluminum tariffs. In this international trade brief, we review the implementation of these countermeasures on July 1, and what immediate steps businesses should take to avoid or mitigate these new Canadian surtaxes on imports.
On July 1, 2018, the Canadian government will impose surtaxes on U.S. originating imports identified in the Department of Finance’s publication entitled “Countermeasures in Response to Unjustified Tariffs on Canadian Steel and Aluminum Products.”
As discussed in our earlier trade brief, these countermeasures are in response to the U.S. application of duties of 10% and 25% on Canadian exports of aluminum and steel, respectively, based on national security grounds. Shortly after the U.S. duties were announced, the Department of Finance published a Notice of Intent to Impose Countermeasures with a list of proposed countermeasures, which was open for public comments until June 15. The government received over 1,000 submissions, and issued its final list for the countermeasures today after considering these submissions. The total amount of surtaxes to be collected is projected at C$16.6 billion.
Here are the key elements of the countermeasures:
Businesses should consider the following issues and strategies so as to legally avoid or mitigate the imposition of the surtaxes:
- The surtaxes will apply only to U.S. originating goods, and so if the goods are only being transshipped through the U.S., the surtaxes should not be imposed. The determination concerning the U.S. origination will be based on marking regulations applicable under NAFTA.
- If, before July 1, a shipment of U.S. originating goods that are subject to the countermeasures are in transit to Canada, the countermeasures will not apply at the time of entry even if this occurs after the implementation date. For in transit shipments, importers must be able to provide proof that goods were in transit to Canada based on shipment documentation.
- The determination of the surtaxes is based on the Harmonized System tariff system and the identification of the appropriate tariff classification for U.S. origin goods. Businesses should undertake a careful identification of the appropriate tariff item for the U.S. origin goods to determine if their imports will be subjected to the surtaxes.
- While there may not be an ability to appeal the imposition of the surtaxes (although in some circumstances judicial review may be available), the determination of origin and the correct basis for classification of the products can result in the avoidance of the surtaxes. Our experience has been that, in many cases, importers claiming NAFTA treatment have been indifferent to the correct tariff classification of their products on the basis that the products were treated as duty-free regardless of the tariff item used for the import declaration (if the relevant rules of origin requirements were satisfied, which are different from the marking rules). However, with the imposition of the surtaxes, the appropriate tariff classification will be determinative of the liability for the surtaxes. Review of U.S. origin and tariff classifications, and determining how best to proceed if goods are subject to countermeasures, are complex legal matters. Reliance on a company’s own logistics and customs experts and customs brokers are useful starting points, however consultation with expert trade law counsel can be invaluable in order to navigate through the complex rules and regulations related to the imposition of these countermeasures.
- Contractual terms with suppliers and customers should be reviewed to determine which party will be liable for the payment of the surtaxes. Legal advice should also be obtained to determine if there are ways to avoid or mitigate liability, including through the use of the applicable shipment and invoicing terms for the supply contracts.
- Businesses may have to negotiate having the exporter in the U.S. take over the responsibility of acting as an importer into Canada of the products subject to the countermeasures (or agree to indemnify the Canadian importer for the surtaxes), so that the U.S. origin goods can compete with other similar products in the Canadian market.
- Alternate sources of supply from non-U.S. sources should be investigated.
- Avenues for seeking relief should be explored to determine if the surtaxes can be refunded through existing drawback and other duties relief programs.
- While the submission deadline of June 15 has passed, there may be instances where grounds for special consideration may allow for relief to be provided by the Canadian government. Experienced external counsel should be retained to assist in making submissions to the Canadian government to seek exclusions for products from the final list or to obtain a remission for the surtaxes paid.
Osler has over 30 years of experience in advising on tariff classification, duties relief programs, and making submissions on NAFTA tariff-related matters (and the predecessor bilateral agreement) to the Canadian government, and can assist clients in finding ways to legally mitigate or avoid liability, and in communicating their position fully and persuasively to the government in relation to these matters.