Tax & Trade Blog

Imported goods are identified using Canada’s tariff classification system. Tariff classification is important for two reasons: (1) the duty rate depends on the tariff classification; and (2) tariff classification determines eligibility for preferential duty rates under Canada’s various preferential trade agreements (generally speaking, “Free Trade Agreements” or “FTAs” for short).

Importers can sometimes find themselves in the unfortunate position of facing an enormous increase in duties, or disqualification from preferential FTAs, due to a tariff classification dispute with the Canada Border Services Agency (“CBSA”). As seen in the decision in Canada v. Best Buy Canada Ltd., 2021 FCA 161, classification is not always obvious!

Businesses in the automotive sector will be interested in the recent conclusion to the automotive trade dispute between Canada, the US, and Mexico (the “USMCA Parties”).

The USMCA Parties had different interpretations of the automotive rules in the Canada-United States-Mexico trade Agreement (the “USMCA”), which required a USMCA Panel to be formed to review the different interpretations and settle the dispute.

The Panel publicly released its final decision on January 11, 2023 (the “Decision”).

This decision is important because it makes it easier for automotive producers to receive preferential tariff treatment under the USMCA, which will help the USMCA Parties save costs when importing and exporting vehicles between the USMCA Parties.

While there is no specific definition of what constitutes a Foreign Trade Zone (“FTZ”), this terms generally refers to a specific location within a country that is officially designated as eligible for tariff and tax exemptions with respect to the purchase or importation of raw materials, components, or finished goods. These materials and goods can generally be stored, processed or assembled in the FTZ for re-export without having to pay any domestic taxes or duties. If these materials or goods are distributed into the domestic market, duties and taxes will apply, but will generally be deferred until the time of entry into the domestic market.  

Over the past few years, the Canadian government has tried to position Canada as a desirable destination for foreign investment. To this end, tariffs have been eliminated on essentially all manufacturing inputs, including machinery, equipment, and other inputs used in the industrial manufacturing sector.

According to the Canadian government, this initiative has made Canada the first country in the G-20 to offer a tariff-free zone for industrial manufacturers. Furthermore, since this a nationwide initiative, the federal government has promoted this tariff elimination as essentially making Canada one large FTZ for firms importing manufacturing inputs.

On September 21, 2017 the Canadian-European Union "Comprehensive Economic and Trade Agreement" or "CETA" came into force.

Some businesses may erroneously believe that this means they can ship anything they want beween Canada and the EU without paying any duties. While the reality is a little more complicated, CETA still represents a tremendous achievement for Canada, and provides Canadians with greater access to the massive EU marketplace of 500 million people!

Read the Statement by the Canadian Minister of International Trade here.

On October 18, 2013 the Prime Minister of Canada announced that Canada had reached an agreement in principle for a “Comprehensive Economic and Trade Agreement” (CETA) with the European Union. While not yet in force, and expected to take upwards of two years to be translated and ratified by all 28 EU member states and the European Parliament, the Agreement has generated a lot of excitement about the EU – already Canada’s second biggest trading partner behind the US.

What many businesspeople do not realize is that Canada already has a Free Trade Agreement with a group of European countries – The Canada-European Free Trade Association Free Trade Agreement (CEFTA).