The 30-day moratorium on Trump’s and Canadian retaliatory tariffs should give Canadian importers and exporters some breathing room.  But that breathing room ought to be put to good use considering current duty minimization opportunities, with the future possible implementation of these tariffs in mind.  “Unbundling” is one technique for dealing with punitive tariffs and is reviewed here.

What is Unbundling?

While we are generalizing here, unbundling involves lawfully stripping away non-dutiable components from otherwise dutiable goods.  When goods are imported into a country, the value of those goods needs to be determined so that the proper amount of duty can be applied.  Both Canada and the United States (“US”) are parties to the General Agreement on Tariffs and Trade (the “GATT”) and employ a version of the GATT Valuation Code.  Under that code, the “transaction value” method is the primary system, and focusses on the “price paid or payable” for the imported goods, plus certain additions and less certain deductions.

This system thus allows for the unbundling of certain costs from the dutiable price of the goods, thereby minimizing – and lawfully minimizing – the value of the goods, and by extension, the total duties payable.

Unbundling – Transaction Value Shipping Deduction

A notable deduction under the transaction value (in both Canada and the US) is international shipping, which generally speaking, allows the importer to deduct from the “price paid or payable” for the goods, certain international shipping costs.  (Again, we are generalizing).

The Canada Border Services Agency (“CBSA”) describes its administrative policy with respect to international shipping deductions in Memorandum D13-3-3 and D13-3-4, limiting these shipping costs from the place of direct shipment to Canada, and requiring that such costs be separately identified, be actual costs, and be properly documented.

The US has similar rules, albeit with some slightly different nuances.  US Customs and Border Protection’s (“US CBP”) own administrative guidance indicates that the US will allow for pre-importation shipping to be excluded from price paid or payable, if separately identified, and post-importation shipping costs to be excluded if separately identified and a reasonable cost or charge.

Whether trying to comply with Canadian or US rules, it is imperative for importers to ensure that they are separately obtaining and identifying shipping costs in their invoices and commercial documents and retaining the appropriate shipping documentation to verify those costs.

Takeaways

Unbundling can be an effective technique for achieving the best-available duty on goods, provided the necessary legal requirements are met.  While we have dealt with “shipping costs” here, unbundling opportunities can also be found in other goods and services related to imported goods, and specialized customs and trade advice will generally be required to maximize opportunities.

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