U.S. exporters would take a big hit in the Canadian market under a fundamental change to customs valuation policy now under consideration north of the border. Affected companies now have less than two weeks to register their concerns.

Under the current Value for Duty Regulations, Canada calculates import duties based on the transaction value of the goods, which is typically the price paid or payable in the sale for export of goods to a purchaser in Canada. However, a proposed change to those regulations by the Canada Border Services Agency would establish that when an imported product is subject to multiple sales, which is frequently the case in today’s global supply chains, the “sale for export” of that product is the “last sale.”

This means that a sale within Canada – to include a sale from an importer to a distributor, or from a distributor to a retailer, or from a retailer to a consumer – could be considered a sale for export. Because sale prices typically increase at each step, the proposed regulation would effectively increase the value on which duties are assessed and thus result in significantly higher import duties on goods shipped into Canada. This would have a particularly substantial impact on goods already subject to high duty rates.

However, the proposed regulations are written so broadly that it would be difficult for importers to know specifically how their imported goods would be valued; e.g., what agreements, understandings, or arrangements would be considered and how each would affect value. This lack of transparency would not only leave importers uncertain as to how much duty they could expect to pay, making it harder for them to plan and to compete, but it would also increase their chances of being hit with penalties by making compliance a moving target.

But the proposed change isn’t just bad for business – it could also be illegal. It goes against longstanding Canadian court rulings that identify the sale for export as the one in which title is passed to the importer of the goods. That principle is also enshrined in the World Trade Organization’s Customs Valuation Code, which the regulations thus appear to violate. The changes could also effectively increase import duties above the levels at which Canada has agreed to be bound under WTO rules. Moreover, the regulations could violate the U.S.-Mexico-Canada Agreement, and Washington’s activist approach to addressing violations could open Canadian exports to the threat of retaliatory duties.

For more information on this proposal and how it may impact your business, please contact Tom Travis at (305) 894-1001 or via email or Larry James at (613) 882-7190 or via email.

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