Tax & Trade Blog

In what may well be one of the last decisions Canadian Courts make with respect to Chapter 11 of the North American Free Trade Agreement (“NAFTA”), the Ontario Court of Appeal (“OCA”) in United Mexican States v. Burr dismissed Mexico’s appeal from an Ontario Superior Court decision. The Superior Court had upheld the decision of an arbitral tribunal established under Chapter 11 of NAFTA in response to complaints by individual investors against Mexico.

While presenting an interesting issue, the implementation of the Canada – United States – Mexico Agreement (“CUSMA”) has effectively put an end to these investor-state dispute provisions as far as Canada is concerned, although a limited investor-state dispute mechanism remains in effect between Mexico and the United States.

The World Customs Organization (“WCO”) revises its Nomenclature of Harmonized Commodity Description and Coding System used for the uniform classification of goods traded internationally (“Harmonized System” or “HS Codes”), every five years. This is done to adapt to technological advancements and emerging global changes. As this nomenclature forms the basis for the Tariff Schedules of around 211 WCO member countries worldwide (including US and Canada), these changes are important!

Canada is expected to implement these changes in 2022, and importers will need to re-evaluate their tariff classification, declaration, and HS Coding systems to ensure conformity with the new Canada Tariff.

The Canadian dairy industry is one of the most protected industries in the world, which while good news for Canadian diary producers is decidedly bad news for Canadian importers looking to import and distribute specialty dairy products like fine or specialty cheeses. These importers will face requirements for both import licenses and quota allocation, with the latter usually difficult if not impossible to obtain for first time entrants!

Regulatory Background

As indicated, Canadian importers must have access to a Tariff Rate Quota (“TRQ”) in order to import supply-managed goods that fall within Canada’s Import Control List (“ICL”) at “preferential tariff” rates.

The January 2020 Canadian International Trade Tribunal (“CITT”) decision in Landmark Trade Services v. President of the CBSA (Case No. AP-2019-002) was a welcome relief for customs brokers because the CITT held that Landmark was not liable as the “importer” of the goods, despite the fact the import documentation described Landmark as the importer and purchaser. Accordingly, Landmark would not be on the hook for the additional duty owing from the incorrect tariff classifications used on those import documents.  

Over a year later, however, Landmark’s victory has resulted in headaches for their customers, some of whom are now being reassessed by the CBSA and held liable for the additional duty as owners of the goods at the time they were imported into Canada. To understand why, one must understand what Landmark was doing.

One of the least understood areas of CBSA administrative policy are the rules surrounding the operation and licensing of customs warehouses. These warehouses (of which there are several types) allow goods brought into Canada to be stored within the country while deferring the payment of applicable duties and taxes in respect of their import until they are ‘released’. The rules in this area are administratively complex, and expert legal advice should be considered for any business looking to use or operate a customs warehouse.