Tax & Trade Blog
Beware relying on CBSA Administrative Policies!
An oft-forgotten point in Trade and Customs disputes is the lack of legal weight courts will give to CBSA Administrative Policies (i.e., D-Memos) which set out CBSA’s interpretation of customs laws and procedures.
The recent case in Entreprise Robert Thibert Inc., 2021 CanLII 122329 (CA CITT) (“Entreprise”) serves as a useful reminder for importers that there is real risk in relying on these policies, especially in the tariff classification context, even when the CBSA’s published administrative position appears to be clear and unambiguous.
In, Entreprise, the titular Entreprise Robert Thibert Inc. (“ERT”) was an importer of torque wrenches. Depending on how the parts of the wrench were configured and whether they are imported assembled or separately would attract a different tariff classification.
In November 2015, ERT imported various ratchet drives (i.e. torque wrench handles) under tariff no. 8204.11.00 “hand operated spanners and wrenches – non-adjustable”, which was subject to a most favoured nation (“MFN”) duty rate of 7%.
In June 2019, ERT requested that the ratchets’ tariff class be re-determined as “interchangeable tools for hand tools” under tariff no. 8207.90.90, which has an MFN duty rate of ‘free’.
The basis of this request appeared to be CBSA D-Memo D10-14-36 (Tariff Classification Policy on Ratchet Drives) (the “Policy”) which, at the time of the imports, provided that when a ratchet drive was imported separately from the rest of the wrench parts, it was to be classified under tariff no. 8207.90.90:
8. When the ratchet drives are imported as part of a socket set, they are classified along with other components of the set under tariff item 8204.20.00 as interchangeable spanner sockets, with or without handles.
9. When ratchet drives are imported separately, they are classified under tariff item 8207.90.90 as other interchangeable tools.
CBSA denied ERT’s request for re-determination and ERT appealed to the Canadian International Trade Tribunal (the “CITT”) to determine the correct Tariff Classification.
After considering the submissions of both parties, the CITT found that it was “well-established” that CBSA policies were not binding and that the CITT “must independently interpret law according to the relevant legislation and regulations”.
According to the CITT, the Policy had persuasive “weight”, but it was not conclusive on the issue of proper tariff classification. After conducting an analysis of the relevant tariff classification principles, the CITT found that “no evidence” supported the classification of the Ratchets under 82.07 — “regardless of the contents of the Policy”!
Ultimately, the CITT found that Ratchets were properly classified under the original tariff classification of 8204.11.00, since they were non-adjustable, and dismissed the appeal.
The takeaway point is that even though CBSA D-Memos and other administrative policies may appear to be clear and well-reasoned, they cannot be taken at face value as reflective of CBSA’s current position or determinative of any legal issue at the CITT. Entreprise shows that CBSA can easily renege on inconvenient administrative positions — often without notice.
To add insult to injury, the Policy was updated online shortly after ERT commenced its appeal to reflect current CBSA policy. Had CBSA amended the Policy sooner or provided a clear statement that the Policy was ‘under review’ or ‘out of date’ prior to the appeal, ERT may have been spared from this costly, and ultimately futile, litigation.
Importers in the position of relying on CBSA administrative policies (especially in tariff classification matters) should seek professional legal advice to ensure the basis of their goods’ tariff classification is consistent with the overarching law and regulations and not just CBSA policy!
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