Valuation for duty regulations miss the mark

  • October 31, 2023

The Commodity Tax, Customs and Trade Section of the Canadian Bar Association, in a letter to the Canada Border Services Agency, or CBSA, offers comments on proposed regulations amending the Valuation for Duty Regulations. These were published for a host of reasons, including to align current law with Canada’s international obligations, protect Canadian importers’ ability to compete with non-resident importers, bring certainty and predictability to the importing community and allow CBSA to collect the right amount of revenue from duties.

The problem, the CBA Section says, is that the proposed regulations do not achieve those objectives.

In particular, the letter says, “the proposed Regulations are incompatible with Canada’s international obligations, particularly Article 1 of the Agreement on the implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Customs Valuation Agreement).” This article states that the value of imported goods is the price actually paid or payable when the goods are sold for export.

The regulations would depart from stated policy on what constitutes the “last sale” of imported goods for customs purposes, by shifting the basis for the customs valuation away from the last sale occurring prior to the goods being introduced in Canada and only capture domestic transactions between Canadian entities that take place after the goods are imported.

This is not consistent with the customs regulations of Canada’s major trading partners. The European Union guidance on “last sale” requires that the value of the transaction must be based “on an actual, legal sale of the goods occurring immediately before the introduction of the goods into the country, and not on some sort of understanding or arrangement with respect to a future sale that does not yet exist, or is not legally binding, at the time of importation.”

Eliminating the role of Canadian distributors

The proposed regulations, the CBA Section says, go well beyond levelling the playing field for Canadian importers relative to non-resident importers, or NRIs. “They will have the effect of requiring Canadian distributors who are resident and/or have a significant presence in Canada (i.e., existing ‘purchasers in Canada’ or PICs) to pay higher duties on goods they import into Canada for domestic sale in any scenario where the distributor does not import and store the goods as inventory with the remote possibility of a sale.”

The proposed regulations would also apply to Canadian retailers who import goods to sell them online to domestic consumers. This “will result in a value for duty based on the consumer price and will lead to elimination of the Canadian retailer, given that the sales could be made directly from the foreign (e.g., US) retailer utilizing the de minimus rules,” the letter warns, also noting that this would lead to an overvaluation of imported goods, translating into higher costs for consumers. “In addition,” the letter says, “by raising the cost of imported goods relative to domestically produced like goods, the proposed Regulations would violate Canada’s WTO national-treatment obligations.”

The Section urges CBSA to revise and republish the proposed regulations for review and comment.