Tax Insights: Canada imposes import surtax on certain US-origin goods starting July 1, 2018

June 30, 2018

Issue 2018-24

In brief

On June 29, 2018, the Government of Canada announced the final details of its retaliatory surtax that will come into effect at midnight on July 1, 2018.1 This is in response to the United States imposing, starting June 1, 2018, a 25% tariff on imports of certain steel products, and a 10% tariff on imports of certain aluminum products, from Canada (US tariffs). Canada’s countermeasures will remain in effect until the United States rescinds their new tariffs. 

In detail

Background

In March 2018, the United States began imposing tariffs on imports of certain steel and aluminum products, citing reasons relating to “national security,” but provided exemptions for Canada and Mexico. These exemptions expired on June 1, 2018.

The Canadian government tried to reach a mutually beneficial resolution. However, with negotiations for the North American Free Trade Agreement (NAFTA) going nowhere, the United States decided to take a hardline approach with Canada.

On May 31, 2018, US Commerce Secretary Wilbur Ross announced that the United States would impose, starting June 1, 2018, a 25% tariff on imports of certain steel products, and a 10% tariff on imports of certain aluminum products, from Canada. 

Canada then announced that they would counter these US tariffs with a surtax or similar trade-restrictive countermeasures on US origin imports of up to CA $16.6 billion, which approximates the 2017 value of Canadian exports affected by these US tariffs. The Canadian government also stated that they would consider other measures if necessary.

The affected goods

The affected goods are listed in three tables, which are currently available on the Department of Finance’s website.2 The surtax on imported US-origin goods listed in Table 1 is 25%, and 10% on those goods listed in Tables 2 and 3.

The Canada Border Services Agency (CBSA) and the surtax

Customs Notice (CN) 18-083 advises that the surtax will be levied where applicable, on the value for duty, and not on the value declared plus the customs duty. In addition, traders will need to maintain adequate proof of origin to demonstrate to the CBSA that the goods imported that are subject to the surtax are not of US origin. 

According to CN 18-08, the burden of proof lies with the importer, and the determination of US origin is to be conducted under the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations (the NAFTA Marking Rules) and not the NAFTA Rules of Origin or other legislation. CN 18-08 also advises that relief from the surtax may be available under the CBSA’s Duty Deferral Program. For more information, please consult CN 18-08. CN 18-08 also identifies certain exceptions to the surtax, but the exceptions are considered minimal.

Table 1: 25% surtax

Table 1 is available in the Department of Finance’s June 29, 2018 Notice.4

Products included in Table 1 and subject to the 25% surtax primarily include iron and steel products found in tariff headings 72.06 to 73.06.

Tables 2 and 3: 10% surtax

Tables 2 and 3 are available in the Department of Finance’s June 29, 2018 Notice.5

Tables 2 and 3 primarily cover the difference between the amount of the surtax imposed on goods listed in Table 1 and the total 2017 value of Canadian exports affected by the US tariffs.

The goods listed in Tables 2 and 3 range from yogurt in Chapter 4 of the Customs Tariff, to other food or beverage products found in Chapters 9, and 16 – 22. 

Other affected goods are found in the following chapters of the Customs Tariff:

  • Chapters 33 – 35 (for certain cosmetics, soaps, candles and glues to name a few)
  • Chapters 38 – 39 (for certain chemical products and plastics)
  • Chapter 44 (for certain wood products) 
  • Chapters 48 – 49 (for certain paper/paperboard products and printed products) 
  • Chapter 73 (for certain articles of iron or steel, including cast iron grilles and non-portable stoves or ranges.)
  • Chapter 76 (for certain aluminum products and articles of aluminum)
  • Chapter 84 (for certain machinery and mechanical/electrical appliances, and equipment)
  • Chapter 89 (for certain boats and ships)
  • Chapters 94 – 96 (for certain furniture, toys and pens, among other miscellaneous manufactured articles)

How PwC can help 

Canadian importers and exporters to Canada should know the origin of goods that are shipped. As the countermeasures become effective on July 1, 2018, the surtax will impact not only US-origin goods shipped from the United States, but also US origin goods shipped from elsewhere.  

Canadian importers should always know with certainty the tariff classification of the goods that they import as this is a requirement for importers, but now becomes more important as the surtax is both tariff classification and origin-driven. Now, more than ever, there may be surtax implications if the wrong classification is applied for US-origin goods that are imported into Canada – paying too much on imports or not paying enough, resulting in potential penalties.

PwC can work with your company to review your imports and supply chain to: 

  • identify potential cost increases as a result of the new surtax 
  • examine opportunities to manage this new unforeseen import tax




1. “Countermeasures in Response to Unjustified Tariffs on Canadian Steel and Aluminum Products,” Department of Finance Canada (June 29, 2018).
2. See note 1.
3. Customs Notice 18-08 “Surtaxes Imposed on Certain Products Originating in the United States,” Canada Border Services Agency (June 29, 2018). 
4. See note 1.
5. See note 1.


 

Contact us

Jaime Seidner

Partner, PwC Canada

Tel: +1 416 687 8492

Jody McLean

Manager, PwC Canada

Tel: +1 416 869 2459

Cynthia Lei

Senior Associate, PwC Canada

Tel: +1 416 941 8383 ext 13867

Follow PwC Canada