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CBSA LOSES CHALLENGE ON NHP IMPORTS!

CBSA ARGUED CHANGE IN EXPLANATORY NOTES REQUIRED EVIDENCE OF EFFICACY

The recent decision of the Canadian International Trade Tribunal (the “CITT”) in Atrium Innovations Inc. (AP-2021-032 and AP-2022-026) is good news for importers of licensed Natural Health Products (“NHPs”). 

In its decision the CITT upheld 25 years of precedent and rejected arguments by the Canada Border Services Agency (the “CBSA”) that December 2019 changes to the WCO Explanatory Notes now require evidence of efficacy before classifying an NHP as a “medicament” for tariff purposes.

Background

The background to this matter was summed up by the CITT:

“Until the CBSA’s actions in this matter, the law had been clear for years that a good is classified as a medicament of heading 30.04 if it has therapeutic or prophylactic uses. Indeed, in a series of cases decided approximately 25 years ago, the Tribunal and the courts determined that irrefutable proof of efficacy was not required as long as the good is recognizable as a medicament—for example, where there is plausible evidence of its use for health-related purposes, and where no reasonable person would consider it to be a food.”

The products imported by Atrium included Essential Fatty Acid products, CoQ10 products, and Ashwagandha products.  They were imported as medicaments (under tariff heading 30.04), duty-free. 

CBSA took the position that December 1, 2019 amendments to the WCO Explanatory Notes (the “2019 Amendments”) required products to have their curative or prophylactic efficacy scientifically proven to the CBSA before they can be classified as a medicament under 30.04.  Finding the evidence of efficacy of these products lacking, the CBSA re-classified Atrium’s products as “other food preparations not elsewhere specified” under heading 21.06 (generally a 10.5% rate of duty). 

CITT Decision

The CITT reviewed the statutory scheme of the Customs Tariff and reiterated that it is the primary legal guide for tariff classification.  WCO Explanatory Notes and Classification Opinions are secondary interpretive instruments which should be followed unless there is a good reason not to per s. 11 of the Customs Tariff. 

The CITT found a good reason not to follow the 2019 Amendments, holding that they “conflict with the established…Canadian legal order governing the classification of medicaments.”  While the CITT identified a legal mechanism in s. 14(1) of the Customs Tariff which could have been used to integrate the 2019 Amendments into Canadian law, the CITT found that no such action was taken.

In the event that the 2019 Amendments were effective, the CITT considered the expert testimony from CBSA that the products at issue “were not as effective as claimed”. The CITT held that as the products were licensed NHPs, Health Canada’s approval “effectively resolved any scientific controversy regarding the efficacy of the goods at issue in favour of their effectiveness.”

Takeaways

Natural Health Product importers should review their tariff classifications to ensure they align with Canadian caselaw. While Atrium was successful, the result could have been different – particularly for more “food-like” NHPs. Tariff Classification is not a “one-size-fits-all” approach, and consultation with experienced trade lawyers is recommended.

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