Importing goods into Canada

Bernard Colas, International Trade Lawyer, Gottlieb & Pearson, Attorneys, Montreal.

This article describes Canada's legal and administrative framework which regulates the importation of goods into Canada. Over the last few years, Canada further liberalized its economy and adapted its administrative framework to allow more flexible and efficient response to importer's needs.

CAUTION - THIS ARTICLE IS NO LONGER UP TO DATE AND IS NOW PART OF OUR HISTORICAL TEXTS

Information below is current as of the date of its writing only and does not represent the legislative and jurisprudential changes in force since its writing.

CONTENT

A. Legal Framework
B. Administrative Framework
C. Import Procedures

Customs Duty
Duty Relief Programs
Releasing of Imported Goods

A. Legal Framework

Canadian law governing the importation of goods reflects Canada's commitment to the liberal world and regional trading order as embodied in the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA) and other trade agreements :

The WTO Agreements, which came into effect in 1995, have a far reaching impact as they not only have the effect of reducing customs duties and non-tariff barriers to trade but they also regulate a range of other areas including customs valuation, customs administration, technical standards, subsidies, dumping, trade-related investments, intellectual property and government procurement. Imports from all 146 countries enjoy most-favored nation treatment with tarifs averaging from 4 to 5 percent on industrial goods. A very large number of items bear no duty at all. The WTO also guarantees non-discriminatory and fair treatment of imports.
At the risk of oversimplifying this agreement, the prime focus of NAFTA, which came into effect in 1994, was to allow countries which are party to the Agreement (i.e. Canada, United States and Mexico) to have gradual duty free access to other countries' markets in most sectors of the economy. As of January 1, 1988, goods originating from the United States are imported into Canada duty free. Mexican goods will benefit from such preferential treatment in 2009.
In 1996, Canada entered into free trade agreements with Israel and Chile, and in 2001 with Costa Rica. Their objectives are to eliminate barriers to trade in goods and to promote conditions of fair competition between the parties. Canada is currently pushing for further trade liberalization. It is currently negotiating free trade agreements with the countries of the European Free Trade Association (EFTA) (i.e. Norway, Switzerland, Iceland and Liechtenstein) as well as with 33 American countries within the Free Trade Area of the Americas (FTAA).

All these agreements affect Canada's customs rules which are contained in relatively few statutes, notably the Customs Act, the Customs Tariff, the Special Import Measures Act, the Export and Import Permit Act :

The Customs Act, administered by the recently created Canada Customs and Revenue Agency (CCRA), is the most important statute regulating the importation of goods into Canada. It regulates, amongst other things (i) the administration of the customs law, (ii) the payment and collection of duties, (iii) the obligation of importers to report imported goods (iv) the consequences of failing to comply with this obligation and (v) the powers of the CCRA, including the power to conduct search and seizures.
The Customs Tariff contains a schedule setting out rates of custom duties attaching to all goods and the general rules for determining the classification of imported goods, the tariff treatment of goods, and rules respecting proof of origin of goods. The Customs Tariff is also administered by the CCRA but is drafted and amended by the Department of Finance in accordance with Canada's international obligations.
The Special Import Measures Act is the statute which implements Canada's obligations under the WTO Anti-Dumping Agreement and the Agreement on Subsidies and Countervailing Measures. It sets out the procedure for determining the existence of dumping or subsidization, for determining whether dumped or subsidized goods are causing material injury to domestic production and for collecting dumping and countervailing duties. It also sets out an obligation to conduct sunset reviews of injury findings. Authority to act under the Special Import Measures Act is split between the CCRA, which determines whether there is dumping and subsidization and collects duties, and the Canadian International Trade Tribunal which conducts material injury inquiries.
The importation of certain goods is controlled by means of the Import Control List established under the Export and Import Permits Act. This Act is administered by the Department of Foreign Affairs and International Trade (DFAIT) and goods listed on the Import Control List cannot be imported without an import permit issued by DFAIT.

International trade agreements also affect other legislation which regulate to some extent goods which are imported into Canada. Statutes such as the Canada Agricultural Products Act, the Textile Labeling Act, Consumer and Packaging Labeling Act, the Food and Drugs Act primarily regulate internal trade but also contain obligations respecting imported goods.

B. Administrative Framework

The following government departments and agencies are responsible for the administration of Canada's customs and trade laws :

The Canada Customs and Revenue Agency (CCRA), which began operations on November 1, 1999, assumes the full mandate of the former Revenue Canada. It has the primary responsibility for administering Canada's customs laws. That responsibility involves securing Canadian borders, which includes (i) processing commercial goods and travelers, (ii) preventing the entry of prohibited materials and inadmissible persons, (iii) inspecting, for federal and provincial agencies, goods and conveyances entering Canada and (iv) verifying compliance with international agreements. The CCRA's organization and management is overseen by a Board of Management composed of members appointed by the provinces and territories as well as the federal government. Despite this managerial autonomy, the Minister of National Revenue remains accountable for the activities of the Agency.
While the CCRA enforces the Customs Tariff, it is the Department of Finance which sets the policy in accordance with Canada's international obligations and its domestic interests. The Department of Finance is also able to grant tariff relief and to consider requests for statutory amendments to the Customs Tariff.
Besides negotiating and implementing the various trade agreements to which Canada is a signatory, the Department of Foreign Affairs and International Trade (DFAIT) administers the Import Control List under the Export and Import Permits Act. No goods listed on the Import Control List can be imported into Canada without an import permit issued by DFAIT officials. Virtually all textile and apparel products are subject to import control, along with numerous agricultural products (dairy products, chicken, beef and veal, turkey, grain and grain products, endangered species, weapons and armaments and steel products). Some products are controlled for statistical purposes in which case the issuance of an import permit is automatic. Others are subject to quota restraint and the issuance of an import permit is subject to a determination that the person requesting the import permit is entitled to access under the quota levels. Because DFAIT does not have any border personnel to enforce its regulations, enforcement is handled by officials of the CCRA, under instructions from the DFAIT.
Finally, the Canadian International Trade Tribunal (CITT) is an independent quasi-judicial tribunal which (i) conducts inquiries into the material injury portion of anti-dumping and countervailing duty investigations; (ii) hears appeals from decisions of the CCRA made under the Customs Act, the Excise Tax Act and the Special Import Measures Act; (iii) conducts inquiries and provides advice to the Cabinet or the Minister of Finance on trade and tariff issues as are referred to the CITT from time to time; (iv) conducts inquiries into procurement complaints arising out of the NAFTA, the Agreement on Internal Trade or the WTO Agreement on Government Procurement; (v) conducts safeguard inquiries into complaints by domestic producers that increased imports are causing, or threatening to cause, serious injury to domestic producers; and (vi) conducts investigations into requests from Canadian producers for tariff relief on imported textile inputs that are used in their production operations. Some decisions of the CITT are subject to statutory appeals, for example, decisions under the Customs Act are subject to appeal on a question of law to the Federal Court of Appeal. Decisions in anti-dumping or countervailing duty inquiries are subject to judicial review before the Federal Court of Appeal or bi-national panel review under Chapter 19 of NAFTA. Where the CITT issues an advice to Cabinet or the Minister of Finance, there is no appeal and such decisions are subject to judicial review.

Therefore, the administration of Canada's customs and trade laws is not uniform. Various government departments and agencies are involved to differing degrees in the import process which is described below.

C. Import Procedures

All commercial goods imported into Canada are subject to customs duty and to the 7% Goods and Services Tax (GST)⁽¹⁾ , unless they are exempt or free of duties. They are also subject to other import regulations respecting the importation of certain classes of goods such as food, drugs and agricultural products, the protection of Canadian industry from injurious imports and the implementation of government policies on international trade.

1. Customs Duty

To calculate the duty payable on imported goods into Canada, importers must :

Classify the imported goods in accordance with the Customs Tariff, which is based on the Harmonized Commodity Description and Coding System (the " Harmonized System ") of the World Customs Organization (WCO). As a result of Canada's membership in the WCO, and its adoption in its own Customs Tariff of the Harmonized System, the work of the WCO, including its technical opinions, classification opinions and explanatory notes to the Harmonized System are all important in determining the state of Canadian law in the tariff area.
Determine the country of origin of such goods in order to identify the trade agreement they fall under and the tariff treatment they will receive. Tariffs have been eliminated on imported goods originating from the United States and will be removed for goods from Mexico at the end of the NAFTA phasing-out period in 2009. Certain goods originating in Israel and Chile which qualify for preferential treatment under free-trade agreements with these countries enter Canada duty-free. Lower rates of duty are levied on many imports from developing countries (under the Generalized System of Preferences) and certain Commonwealth countries. Imports from most countries receive a most-favoured-nation (MFN) tariff. The MFN tariff is granted to goods that originate in a WTO member country, such as many Asian countries, and in countries to which Canada has agreed to extend MFN benefits.
Determine and declare its value for duty. The primary method for valuing imported goods is the transaction value, which is basically the price paid or payable for the imported goods with certain statutory adjustments. Failure to properly declare all elements of the price paid or payable (e.g. royalties and license fees) may expose the importer to retroactive assessments and penalties.

2. Duty Relief Programs

Importers may apply for drawback, refund and remission programs in order to reduce, eliminate or defer custom duties on qualifying goods in the following circumstances :

Duty drawback scheme allows eligible claimants to receive a full or partial drawback of duties paid on items which, in some cases, are imported to be used in the manufacture of goods in Canada that are subsequently exported. NAFTA limits the availability of drawbacks for exports to the United States. Drawbacks are also available for certain goods used for specified purposes and that are consumed in Canada.
Duty deferral, reduction or relief may be available in a variety of circumstances, in particular, where goods are imported and subsequently re-exported or are used to process goods that are subsequently exported and for machinery that is not available in Canada. It is, for instance, possible under the customs bonded warehouse program, to defer the payment of duties and taxes up to the point the goods enter the Canadian market. If the goods are exported the duties are not payable. While in warehouse, the goods may also undergo certain minor manipulations, such as marking, testing, packaging, displaying and diluting.

3. Releasing the Imported Goods

Before the goods are released to the importer, CCRA officers require that certain documents be presented in paper form or, with its authorization, in electronic form. Such documents generally include :

Two copies of the commercial sales receipt or invoice that describes the equipment and quantities in detail and indicates the buyer, seller, country of origin and price paid or payable. If it does not contain all the above-mentioned information, a Canada Customs Invoice (CCI) may be added to provide the remaining information.
Two copies of the cargo control documents : Transport documents which report the arrival of the shipment at the international border entry point (this document may be given by the carrier to the customs officer).
Two copies of a completed Form B3 - Canada Customs Coding Form which includes the importer's name and its Business Number import/export account, a description of the goods, the direct shipment date, the tariff treatment, the country of origin, the tariff classification, the value for duties, the appropriate duty or tax rates, and, if applicable, the calculation of duties owing.
An import permit, health certificate or other form that may be required by federal government departments. For instance, the DFAIT requires import permits for goods such as textiles and clothing, agricultural and steel products, arms and ammunition, endangered species and some food items such as dairy products, poultry, and eggs. The Canadian Food Inspection Agency examines and gives permits for some meat products, and all restricted or controlled drugs require an import permit from Health Canada.
A certificate of origin to support the claimed lower customs tariff treatment for goods that originate from NAFTA countries (United States and Mexico), Israel, Chile and from developing countries (Generalized System of Preferences). This document does not have to be presented with the other documents but must be kept by the importer for a six-year period in case requested by CCRA.

⁽¹⁾ : Depending on the goods or their value, some other charges or taxes may apply, including excise duty and excise tax on luxury items like jewelry or alcohol.

CAUTION - THIS ARTICLE IS NO LONGER UP TO DATE. CANADIAN LEGISLATION HAS CHANGED RECENTLY. THE ARTICLE WILL BE UPDATED SOON.

POSTED : December 17, 2003

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