Anyone who watches " The Big Bang Theory" knows about Schrödinger's cat. The cat was both thought to be dead and thought to be not dead at the same time. There is a similar paradox for Canadian companies who sell to the United States and/or China. Canadian goods may be thought to be not subject to the trade war tariffs and subject to the trade war tariffs at the same time. You have to wait for the customs officers to open the box and take a look inside --- and ask for proof of Canadian origin.
March 8, 2018, President Trump signed two Presidential Proclamations, one dealing with additional (232) tariffs on steel and the other with additional tariffs on aluminum. As has been widely reported in the general press, those rates are 25% on steel and 10% on aluminum. Canada and Mexico (along with other countries) are exempted for the time being. China responded notified the World Trade Organization that it was withdrawing concessions against 128 U.S. origin goods.
On March 22, 2018, President Trump issued a " Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation" threatening to impose (301) tariffs against certain China-origin goods valued at $50 Billion. The U.S. Trade Representative ("USTR") has prepared for publication a Federal Register Notice that identifies a list of approximately 1,300 tariff lines on which it proposes to levy additional duties of up to 25% on goods made in China. China has indicated that it will respond with additional U.S.-origin goods being subjected to retaliatory tariffs.
President Trump has asked the United States Trade Representative to draw up a list of China-origin goods worth $100 Billion against which the United States will impose tariffs. China has indicated that it will respond and will impose additional tariffs against U.S.-origin goods. These lists have not yet been released.
While only the steel and aluminum (and solar panels and washing machine) tariffs are in place and the retaliatory tariffs may be the subject of negotiations, we do know that tariffs are possible and may be on the horizon. We have some of the lists of covered goods and we have the benefit of time to prepare. If the tariffs are imposed, there may not be a lead time - they may be imposed within a 24 hour window of time.
What does this mean for Canadian
exporters?
Some say there are opportunities because Canadian-origin goods
would not be subject to the duties. BUT, what is a Canadian-origin
good? Canada does not have a free trade agreement with China
that sets out rules of origin. Even though Canada has a free
trade agreement with the United States, U.S. Customs and Border
Protection officers routinely deny NAFTA treatment to
Canadian-origin goods where they are not satisfied with the
paperwork or evidence. It is not unusual for there to be
NAFTA paperwork problems (in fact, paperwork problems are common)
because many Canadian exporters do not have full time compliance
staff and MFN duties are low. Many Canadian exporters do not
understand the risk and the cost associated with the risks of
denial of preferential tariff treatment. The risk is now both
a denial of preferential treatment and an imposition of punitive
treatment.
With new potential duties of 25% being imposed (possibly), it will become more important to be attentive to customs compliance and maintaining satisfactory evidence of origin. When I say "satisfactory" I do not mean satisfactory to the exporter, I mean satisfactory to the government on the importing country. I mean satisfactory to government officials who are looking for a reason to reject the Canadian tariff treatment. I mean satisfactory to suspicious customs officers who think that Canada is a transshipment point.
Make a List of Goods Subject to Retaliatory
Tariffs
It is important to know what goods are subject to retaliatory
tariffs. Either someone in your organization should be tasked
with monitoring the lists or hire someone to notify you when
certain goods are subject to retaliatory tariffs. If goods
that you export are on a list, you will have an increased
risk. More questions should be asked such as:
" Which goods are subject to retaliatory tariffs?
" Which country imposes the retaliatory tariffs?
" Does the company export goods subject to the retaliatory
tariffs to the country imposing the retaliatory tariffs?
" Does the company use rules of origin under a free trade
agreement to benefit from duty free treatment or do specific rules
of origin help with the determination of origin?
" Does the company act as the importer of record when it
exports goods subject to the retaliatory tariffs to the country
imposing the retaliatory tariffs?
" Is the relationship with the buyer important - if we make
an error in the paperwork, will it be detrimental to our
relationship with the buyer?
" Does the country that imposes the retaliatory tariffs have
laws that puts liability of the exporter for errors in
paperwork?
Internal Review
When was the last time that your company took a close look at its
customs compliance and the paperwork that supports origin
claims? When was the last time that your company closely
reviewed the paperwork to see if there are errors relating to
statements of origin or determinations of origin? Do you keep a
binder of internal origin determinations? Do you have your
certificates of origin up-to-date? Do you trust that your
certificates of origin are accurate? When was the last time
you asked how and where the origin paperwork is maintained and
kept? When was the last time that your company reviewed the
rules of origin in NAFTA? When was the last time you
spot-checked an origin determination with respect to goods that you
export? Have you ever asked what paperwork is required by China?
When was the last time that your company reviewed its internal
procedures for tracking inputs? It is time to start to ask
questions - a lot of questions.
If you do not ask the right questions or conduct an internal compliance review, you might find that goods that you think are not subject to retaliatory tariffs are subject to retaliatory tariffs. It may be costly. It will not be helpful to think that "our goods are Canadian, we do not have to worry about these tariffs" because you might find that your assumptions are incorrect. How much exactly is 25% of the value of your expected shipments of listed goods to countries who are retaliating against someone? If the amount is more than $5000, it might be worth asking the necessary questions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.