Tax Insights: US transshipment enforcement ─ Key considerations for Canadian businesses

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Issue 2026-34

In brief

What happened?

On August 13, 2026, the White House Office of Trade and Manufacturing Policy (OTMP) released The Great Transshipment Scam, a report examining illegal transshipment through more than 40 jurisdictions to avoid US tariffs. The report identifies Canada as a Tier 1 “Diversified Scale Leader,” placing Canada‑US trade flows within the report’s highest-priority risk category.

The OTMP report also describes measures associated with Executive Order 14411,¹ including stronger importer accountability, bonding and domestic‑asset requirements, ownership and affiliation disclosures, penalties and trade transparency. Furthermore, it outlines an artificial intelligence (AI)‑enabled “Detective Border” initiative to help US Customs and Border Protection (CBP) identify anomalous routing, origin and production capacity patterns.

Why is it relevant?

Canadian companies that export to the United States, act as US importers of record or supply US customers may be subject to a closer review by CBP with respect to country of origin, routing, production activity and China‑origin inputs. The key risk is not that Canada is included in the report, but whether the company can demonstrate that its declared origin and tariff treatment are supported by the underlying manufacturing facts and contemporaneous records. Legitimate nearshoring, contract manufacturing, distribution and processing arrangements may attract questions when that evidence is incomplete or inconsistent.

The report distinguishes genuine manufacturing and substantial transformation from pass‑through trade, relabelling, repackaging, re-invoicing and minor processing. Canadian businesses should therefore expect origin claims to be tested against operational evidence, including supplier records, bills of materials, manufacturing steps, shipment histories and commercial documentation.

The businesses that are most likely to be affected include Canadian exporters using imported components, Canadian groups acting as US importers of record, companies routing goods through multiple jurisdictions, and multinationals changing supply chains or intercompany pricing in response to tariffs.

Actions to consider

Businesses that export from Canada to the United States should review supply chains for China‑origin inputs, validate and document country of origin claims and reassess importer of record, customs bond, customs valuation and transfer pricing arrangements. They should also establish a cross‑functional response protocol for CBP enquiries.

In detail

Background: The US transshipment enforcement landscape

Transshipment occurs when goods originating in one country are routed through an intermediate country before entering a destination market. While transshipment is not inherently illegal, it becomes a compliance concern when it is used to misrepresent the country of origin of goods and avoid applicable duties, tariffs or trade restrictions.

The OTMP report characterizes illegal transshipment as a threat to US economic security and signals a significant escalation in the US Administration’s approach to transshipment enforcement. The report builds on the US Administration’s broader tariff enforcement agenda, including the US International Emergency Economic Powers Act (IEEPA) emergency tariffs and section 338 tariffs under the US Tariff Act of 1930, by targeting supply chain practices that may facilitate tariff evasion.

Methods of illegal transshipment

The report identifies four primary methods used to illegally transship goods into the United States:

• Relabelling and repackaging – Goods manufactured in a high‑tariff country (typically China) are shipped to an intermediate country where “made in” labels are removed and replaced with labels indicating origin in the transit country, without any substantive manufacturing or processing taking place.
• Re-invoicing – Commercial documentation is altered to show the intermediate country as the country of origin. New invoices are issued by entities in the transit country, obscuring the true supply chain.
• Minor processing – Goods undergo minimal processing in the transit country (such as simple assembly, mixing or packaging) that does not meet the substantial transformation threshold required to confer a new country of origin under US customs law.
• False origin claims – Importers file customs declarations falsely claiming that goods originate in the transit country or in a country entitled to preferential tariff treatment, without any physical presence of the goods in that jurisdiction.

Each method presents a distinct compliance risk for businesses that source, manufacture or distribute goods through multi-country supply chains. The report also cautions that companies may face enforcement exposure even where transshipment was not intentional, if their supply chains involve practices viewed as masking true origin.

Elevated‑risk country tiers

The report classifies 38 jurisdictions into three tiers based on their assessed role in facilitating transshipment of Chinese-origin goods:

The tier classification has direct operational implications. Tier 1 countries, including Canada, are expected to face the most intensive scrutiny, including enhanced documentation requirements, more frequent CBP examinations and a heightened expectation that importers can substantiate origin claims.

New enforcement tools and penalties

Executive Order 14411 introduces several enforcement mechanisms designed to detect and deter illegal transshipment:

• Tightened importer of record requirements – Enhanced vetting of importers of record, with additional qualifications and compliance history requirements before importation is permitted.
• Increased bonding and domestic asset requirements – Importers may be required to post larger bonds and demonstrate sufficient domestic assets to cover potential duty liabilities, particularly for goods from flagged jurisdictions.
• Additional ownership and business affiliation disclosures – Importers will be required to disclose beneficial ownership structures and business affiliations, particularly where those affiliations connect to entities in high-tariff countries.
• Good-standing requirements – Importers must maintain compliance records and demonstrate good standing with CBP to continue importing from elevated-risk jurisdictions.
• Strengthened penalties – Enhanced civil and criminal penalties for importers found to have engaged in or facilitated illegal transshipment.
• Improved customs transparency – Greater information sharing between CBP and trading partners, as well as enhanced public disclosure of enforcement actions.

The report also introduces the AI-enabled “Detective Border” that integrates shipment data, routing histories, product classifications, ownership relationships, capacity indicators and anomaly detection to identify potential transshipment. This represents a significant enhancement to CBP’s enforcement capabilities by enabling pattern recognition across large volumes of import transactions.

Customs duty and rules of origin considerations

The transshipment enforcement escalation intersects directly with rules of origin under the Canada‑United States‑Mexico Agreement (CUSMA) and other preferential trade agreements. Key considerations include:

• Substantial transformation – Under US customs law, goods must undergo a “substantial transformation” in a country to be considered as originating there. The new enforcement framework will increase scrutiny of whether processing activities in intermediate countries genuinely meet this threshold, or whether they constitute the “minor processing” identified by the report as a transshipment method.
• Regional value content (RVC) – CUSMA’s product‑specific rules of origin require that goods meet minimum regional value content thresholds to qualify for preferential treatment. The transshipment report signals that CBP will more aggressively verify RVC claims, particularly for products with components sourced from China.
• Tariff shift requirements – Where CUSMA rules require a change in tariff classification, CBP will examine whether the processing undertaken in Canada or Mexico genuinely produces a tariff shift, or whether the goods are merely relabelled or minimally processed versions of Chinese imports.
• Certificate of origin integrity – The enhanced enforcement framework places increased importance on the accuracy and completeness of certificates of origin. Businesses should review their origin certification processes to ensure they can withstand heightened verification.

CUSMA preferential treatment does not, on its own, eliminate transshipment risk. The US Administration has indicated that it may look beyond trade agreement frameworks where it suspects tariff evasion, including in relation to section 338 tariffs that apply regardless of CUSMA status.

Implications for Canadian businesses

Canada’s classification as a Tier 1 “Diversified Scale Leader” has specific and immediate implications for Canadian businesses:

• Enhanced border scrutiny – Canadian exports to the United States will face increased examination and documentation requirements. Businesses should anticipate longer processing times and more frequent CBP enquiries regarding the origin and routing of goods.
• Supply chain documentation – Canadian exporters will need to maintain comprehensive documentation demonstrating the Canadian origin of their goods, including detailed manufacturing records, sourcing documentation for inputs and evidence of substantial transformation where components are imported.
• Intersection with existing tariffs – The transshipment enforcement measures operate alongside existing section 338 tariffs and IEEPA measures. Canadian businesses already subject to these tariffs face an additional layer of compliance risk if CBP questions the origin of their goods.
• Indirect exposure – Even businesses that do not directly export to the United States may be affected if they are part of supply chains that transit Canada en route to the US market, or if they source inputs from countries identified in the report.

Canadian businesses should review their supply chains to identify touchpoints with flagged jurisdictions and confirm they can support origin claims under the heightened scrutiny associated with Canada’s Tier 1 designation.

Transfer pricing and customs valuation

The transshipment enforcement landscape creates potential transfer pricing and customs valuation considerations for multinational enterprises, as follows:

• When businesses restructure supply chains to reduce transshipment risk, transfer pricing implications should be carefully managed. The arm’s length transfer price on which customs duties are assessed should align with the transaction value reported to CBP.
• Increased bonding requirements and potential tariff exposure may affect customs values. Businesses should confirm that declared values properly reflect all dutiable elements, including assists, royalties and proceeds of subsequent resale.
• When changes to the supply chain alter the allocation of functions, assets and risks among related entities, businesses should assess whether intercompany pricing continues to reflect the commercial reality.
• Inconsistencies between values declared for customs purposes and those reported for transfer pricing purposes may trigger additional scrutiny from CBP and revenue authorities.

Next steps for Canadian businesses

Canadian businesses that export to the United States should:

• map Canada‑US supply chain routes and identify products with China‑origin inputs or touchpoints in jurisdictions listed by the report
• validate country of origin positions, including substantial transformation and any applicable CUSMA product‑specific rule of origin
• strengthen the audit file for origin claims, including bills of materials, production records, supplier declarations, certificates of origin, invoices and transport documents
• review US importer of record arrangements, customs bonds, ownership information and compliance history in light of measures described under Executive Order 14411
• prepare a response protocol for CBP enquiries, examinations and requests for information, with clear ownership across customs, legal, tax, procurement and operations
• reassess customs valuation and transfer pricing when changes to the supply chain alter transaction values, functions, assets or risks

The takeaway

The OTMP report places Canada within its highest priority transshipment risk tier. For Canadian companies doing business in the United States, the practical issue is whether declared origin, value and routing can be supported by consistent documentation and the underlying commercial facts.

Companies should prioritize products with China‑origin inputs, third country processing, related‑party transactions or complex routing and test whether their records would withstand a CBP review. They should also monitor implementation of Executive Order 14411, because the report notes that several enforcement provisions remain under development.

A coordinated customs, tax, legal, procurement and operations review can help reduce border disruption, unexpected duty assessments and inconsistencies between customs and transfer pricing policies.