AUTOMOTIVE REPORT: TARIFF CHAPTER 87
CBSA'S VERIFICATION AUDITS TARGET VEHICLE TIRES
For many in the automotive industry, there is a temptation to import foreign-made goods (i.e., non-USMCA-qualifying) for use in production processes or as parts and sub-components for vehicles and automotive systems. They are often less costly.
At the same time, many of these imports attract significantly higher duty rates, which can create pressures to classify them under potentially alternative tariff headings with lower rates of duty.
Our recent file experience has demonstrated that this is often a short-lived strategy, as the CBSA’s verification procedures will eventually put these classification decisions to the ultimate test.
CBSA Verification Audits & What Can Happen?
Under section 42.1 of the Customs Act, the CBSA conducts periodic compliance verification audits, which generally conclude with one or more Statements of Adjustment (“SoA”).
The SoA documents have significant legal implications. In addition to re-determining the duties on B3/CAD transactions in error, a SoA may trigger mandatory self-correction obligations on declarations of origin, tariff classification, or value for duty reaching back four years.
Furthermore, corrections are generally due within 90 days of the SoA and may require immediate payment of duties owing. Moreover, failing to correct a tariff classification when an importer has “reason to believe” it is incorrect can result in Administrative Monetary Penalties (“AMPs”) on top of duties.
Tariff Chapter 87 vs. Chapter 40: Tires
A recurring issue in recent CBSA verification audits has been the classification of automotive components as “parts” under Chapter 87 of the Customs Tariff.
Chapter 87 includes headings covering certain vehicles and vehicle parts — many with classification codes that carry a 0% duty rate.
A particular focal point appears to be tires classified as “parts” under headings such as:
– Heading 87.08: Parts and accessories of the motor vehicles of headings 87.01 to 87.06.
– Heading 87.16: Trailers and semi-trailers; other vehicles, not mechanically propelled; parts thereof.
Recent CBSA verifications suggest that the CBSA increasingly takes the position that tires are more properly classified under Chapter 40, which can attract much higher duty rates — particularly where the tires are non-USMCA-originating imports. In some cases, this shift in classification has resulted in reassessments of upwards of $300,000.
Where importers or their brokers have historically classified tires under Chapter 87, the CBSA appears to be revisiting those determinations and seeking to apply the highest applicable duty rate. What may seem like a routine classification decision can therefore quickly become a high-value adjustment.
Chapter 87 are being audited by CBSA.
Experienced Trade Counsel can help, including
by appealing Statements of Adjustment.
Get help early!
Takeaways
There may be a temptation for those in the automotive industry to gravitate toward lower duty rates for imported automotive goods. CBSA verification procedures will put these strategies to the ultimate test. Experienced Trade Counsel can help with both audit issues and required appeals of SoAs. Importers facing issues in these areas should leverage this experience by getting help early.
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