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AD/CV DUTIES: LOST IN THE TRANSLATION?

EXPORTERS TO THE US MAY HAVE LOST THEIR WAY RELYING ON CHINESE IMPORTS

We recently had a file come across our desk where a Canadian company was trading in Chinese products and marginally manufacturing them for export to the United States (US).  The company ultimately came under scrutiny from the United States Customs and Border Protection (US CBP) concerning potential duties.  But not the kind of "duties" that everyone is concerned with today (i.e., neither the "Trump Tariffs" or Canada's "Retaliatory Tariffs").

USCBP was concerned with Anti-Dumping and Countervailing Duties on the Chinese goods – totalling almost 200% based on the landed cost of the goods being exported to the US from Canada.

We view that particular file very much as a harbinger to come in the current trade war climate between Canada and the US, where exporters can expect both the Canada Border Services Agency (CBSA) and the US CBP to increasingly scrutinize goods originating or connected to China, and other low-cost producing countries.

What Are Anti-Dumping & Countervailing Duties?

Anti-dumping duties (“ADD”) are effectively a tariff meant to combat goods that are sold to importers at prices lower than the selling price in the country of export or when goods are sold at unprofitable prices.  Countervailing duties (“CVD”) serve a similar role, in that they are a tariff meant to offset the import of goods which benefit from financial assistance from a foreign government.

Over the past 10 years, we have a seen a number of goods originating from the Chinese economy access the US economy by way of Canada.  In many instances, Canadian businesses will marginally manufacture these Chinese goods prior to export to US.  Such a practice may risk the imposition of ADD and CVD from both the CBSA and the US CBP, as both Canada and the US have imposed a number of ADD and CVD orders on certain Chinese origin goods.

USMCA Rules of Origin

Significantly, the imposition of ADD and CVD duties by either Canada or the US will often have NO DIRECT connection to the "origin" rules under Canada's trade agreements like the United States Mexico Canada Agreement (“USMCA”) preferential tariff treatment.

The USMCA rules of origin are difficult to understand in general, and are only concerned with determining whether goods being imported to a USMCA partner country qualify for duty free treatment under that agreement.

Often, whether the good remains "in scope" with an applicable ADD or CVD order will be a separate legal question, where international trade advice is required, often on both sides of the border.

The Trade War & Supply Chains

As the Trump Administration continues to impose tariffs on foreign imports, with many specifically targeting China (i.e., the March 3, 2025 presidential action imposed a 20% across-the-board tariff on Chinese goods, and the April executive order imposed another 34%), Canadian businesses will also need to be wary of section 301 tariffs hitting Chinese originating Canadian inputs.  For example, Canadian businesses relying on Chinese inputs in their supply chains may risk the imposition of a 79 percent tariff rate being applied to their goods, without even factoring in that ADD and CVD may also be applicable! 

For help with the ADD/CVD Duties and other tariffs, click here.

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