Baker McKenzie’s Canadian international trade and customs team is publishing a series of articles reviewing 2023 trade and customs compliance developments and looking ahead to 2024’s burgeoning issues. This article focuses on Canada’s customs regime.
There were significant updates to the customs landscape in 2023 as the Canada Border Service’s Agency (CBSA) moved to introduce the next stage of the CBSA Assessment and Revenue Management (CARM) program, proposed significant amendments to the Valuation For Duty Regulations, and indicated to importers to expect enforcement of Canada’s prohibition on the importation of goods mined or manufactured with forced labour.
In 2024, importers should brace themselves for continuing regulatory changes, and the associated compliance costs accompanying those changes. CARM Release 2 presents the most significant procedural change to the Canadian customs process in recent memory and all importers will be impacted by this change. We expect that the transition period to CARM will have a learning curve and may not be error-free. The Government of Canada also recently announced new reporting requirements for steel imports and importers may experience detained imports on the suspicion of being manufactured with forced or child labour. Finally, the CBSA has yet to provide revisions to its proposed amendments to the Valuation For Duty Regulations, or to signal whether these amendments will come into forced as drafted. While the CBSA’s attention is currently focused on CARM Release 2, we expect that the CBSA will provide further guidance on their intentions in the latter half of the year.
This article focuses on:
- CARM Release 2;
- The CBSA’s updated verification priorities;
- Proposed amendments to the Valuation For Duty Regulations;
- New country of melt and pour reporting requirements for steel imports; and
- 2023 customs case law developments.
We write about Canada’s forced labour developments in a companion article, which will be released on Baker McKenzie’s Import and Trade Remedies blog shortly.
CARM Release 2
The purpose of CARM is to modernize the collection of duties and taxes for goods imported into Canada. CARM Release 1 was launched in May 2021 and importers, brokers and trade consultants are currently able to register/activate their RM program account on the CARM Client Portal (CCP), delegate CCP access to employees and third parties, view their transactions and statement of accounts, request and track a ruling from the CBSA, and pay invoices with new electronic payment options.
All importers (Customs Self-Assessment (CSA) importers and non-resident importers, included) should ensure that:
- They are registered/have activated their RM program accounts on the CCP;
- They have selected their “business account manager(s)” (BAM) and delegated access to the required employees responsible for customs clearance and payment of duties and taxes to the CBSA;
- They have provided their customs brokers with access to their CARM account (where necessary); and
- They have familiarized themselves with the current functionally of the CCP, including how to submit payments to the CBSA.
If you import goods into Canada and you have yet to register and activate an account on CARM, you should do so immediately to prevent business interruptions. As of May 13, 2024, all commercial goods will be accounted for and reported through CARM. The CBSA FAQs on CARM are available here. The CBSA guidance documents on CARM are available here and instructional videos are available here.
The long awaited launch of CARM Release 2 was pushed back from October 2023 to May 13, 2024. CARM Release 2 is intended to expand the features of the CCP by allowing users to:
- Submit, correct and adjust an electronic commercial accounting declaration (CAD) that will replace the current customs coding Form B3 and request for adjustment Form B2;
- Post and monitor security to participate in the Release Prior to Payment (RPP) program as importers will no longer be able to rely on their customs’ brokers bond to participate in the RPP program;
- Register for a Business Number and enrol in various CBSA commercial programs; and
- Electronically manage appeals and compliance actions.
CARM Release 2 will also introduce harmonized billing cycles. The Statement of Accounts (SOA) will be generated on the 25th of each month and generally the payment due date will be 10 weekdays after the 17th of the following month.
In preparation for CARM Release 2, all importers should consider the following:
- All importers who register on the CCP before May 13, 2024, will be assigned RPP qualifying status for a 180 day transition period. Note that as of April 26 or 29, 2024, registration will no longer be possible on the CPP until after May 13, 2024 (see below re: important dates). During this time, commercial importers will be able to obtain RPP of duties and taxes even if they have not yet posted their own financial security. Registering prior to May 13, 2024 allows importers to benefit from the 180 day transition period. The minimum bond requirement with respect to RPP privileges is CAD $25,000.00. Note that several industry associations have requested that the CBSA reconsider the minimum bond requirement and this may be subject to change.
- Duties and taxes owing an automatically calculated by based on the information input into a CAD. Importers should monitor the amounts of duties and taxes calculated to ensure they are not impacted by technical difficulties and duties and taxes are under or overstated. The CBSA has also included a duty calculator and a classification tool.
- Form B2s are being replaced by the CAD. Submitting corrections/adjustments will be actioned by creating a new version of a CAD.
- Importers can download electronic versions of their Statement of Account and can access the supporting transaction information in Excel, if required for internal audit or accounting purposes.
Additionally, as of February 29, there are two important shutdown/black-out periods reported with respect to CARM Release 2 that will directly impact importers customs accounting processes and procedures:
- April 26 or 29 to May 2, 2024: CADEX and the Customs Commercial System will be shutdown. This will directly impact the ability of importers to file B3s and B2 adjustments.
- April 26 or 29 to May 13, 2024: The CBSA is implementing a black-out period, during which the CCP will not be available. Importers will not have access to registration during this time.
In preparing for CARM, importers should consider that CARM Release 2’s implementation may not be error-free. Importers should consider contingency planning with respect to delays in the release of goods and how that may impact their supply chain or contractual relationships or how those delays may create a cost to be borne by the importer (e.g. storage fees). Importers may consider shifting fulfilment and inventory processes to import goods in advance of April 26 (or 29), 2024.
CBSA’s updated Verification Priorities
The CBSA uses several tools to monitor and identify customs compliance issues, including initiating targeted verifications and issuing compliance notices such as trade advisory notices, compliance validation letters, and directed compliance letters.
Generally, targeted verification priorities are imports from a specific category of goods or a specific industry. The CBSA’s list of trade compliance targeted verification priorities is constantly being updated and verification priorities may carry over from year to year.
The CBSA’s current trade-verification priorities are:
Tariff Classification
| Bags | Harmonized System Number(s): Heading 42.02 |
| Spent fowl | Harmonized System Number(s): Heading 02.07, 16.01 and 16.02 |
| Freezers and other freezing equipment (new in 2023) | Harmonized System Number(s): Heading 84.18 |
| Washers and dryers (new in 2023) | Harmonized System Number(s): Heading 84.50 and 84.51 |
| LED lamps | Harmonized System Number(s): Heading 85.39 |
| Furniture for non-domestic purposes | Harmonized System Number(s): Heading 94.01 and 94.03 |
| Parts of lamps | Harmonized System Number(s): Heading 94.05 |
| Cell phone cases | Harmonized System Number(s): Heading 39.26, 42.02, and 85.17 |
| Parts of machines and mechanical appliances | Harmonized System Number(s): Heading 84.79 |
| Bicycle parts | Harmonized System Number(s): Heading 87.14 |
| Parts for Use with Machinery of Chapter 84 | Harmonized System Number(s): Heading 84.31 |
| Indicator panels and light-emitting diodes (LED) | Harmonized System Number(s): Headings 85.31 and 85.41 |
| Safety headgear | Harmonized System Number(s): Subheading 6506.10 |
| Disposable and protective gloves | Harmonized System Number(s): Subheading 3926.20 and 4015.19 |
In 2023, the CBSA completed the following verification priorities:
- Batteries – Harmonized System Number(s): Heading 85.06;
- Footwear ($30 or more per pair) – Harmonized System Number(s): Heading 64.03;
- Pickled vegetables – Harmonized System Number(s): Heading 20.0;
- Gloves – Harmonized System Number(s): Headings 39.26 and 42.03;
- Other mounting and fittings, suitable for furniture – Harmonized System Number(s): Heading 83.02; and
Flashlights and miners’ safety lamps – Harmonized System Number(s): Heading 85.13.
| Valuation |
| Apparel |
| Origin |
| Bedding and drapery (new in 2023) |
Importers of any of the goods listed above should prepare themselves for a potential verification in 2024 by ensuring the goods are classified and valued properly and that the origin declaration is accurate. Importers may consider initiating internal reviews to assess their customs compliance with respect to these goods.
Under CBSA policy, once an importer receives a notification letter that a trade compliance verification is being initiated, an importer can no longer avail themselves of the CBSA’s voluntary disclosure program and may be subject to administrative monetary penalties and interest at the higher (specified) rate if non-compliance is uncovered throughout the course of a verification.
Proposed amendments to the Valuation for Duty Regulations
On May 27, 2023 the CBSA introduced amendments to the Valuation for Duty Regulations (the Amendments). The Amendments were intended to clarify the “sale” used to establish the value for duty under the transaction value method for all goods imported into Canada. Effectively, the Amendments propose a “last sale” approach to customs valuation, which has the potential to increase the declared value for duty of imported goods, directly increasing duties and taxes owing, and indirectly increasing the cost of doing business in Canada. For further details of the Amendments see our prior blog online here.
The Amendments were met with strong criticism from industry. Following the consultation period, the CBSA stated that “substantial feedback was received concerning the proposed regulations’ intent to potentially apply to domestic sales. The policy objective is not to use a price in a sale between a Canadian resident importer and its Canadian customer as the basis for determining the value for duty.”
To date, the CBSA has not signalled whether they intend to revise the proposed amendments, draft comprehensive policy accompanying the amendments to clarify the application of the proposed amendments, bring the amendments into force as drafted, or abandon the proposed amendments. We expect that the CBSA will signal its next steps regarding the proposed amendments in the latter half of 2024.
Obligation to Account for Country of Melt and Pour for Steel Importations
On February 21, 2024, the Government of Canada announced that importers will be required to identify country of melt and pour (COM) information in customs declarations for imported steel products as of fall 2024. COM refers to the country where raw steel is first melted to a liquid state (smelting) and then poured into a solid shape (casting). The mandatory reporting obligation will be phased in over the next few months until mandatory reporting begins in the fall.
This announcement follows public consultations launched in May 2022. The new reporting requirements aim to increase transparency in Canada’s steel supply chain. Canada follows the United States, which has been collecting COM information since October 2020. Canadian steel producers support these new measures as a means to bolster Canada’s AD/CVD measures in force on certain steel products and to prevent circumvention of AD/CVD measures.
Developing Customs Case Law
In 2023, the Canadian International Trade Tribunal (CITT) and the federal courts issued decisions and reasons in several customs appeals, some of which may be helpful to importers considering appeals, or developing arguments to support current appeals. A few of these decisions are summarized below.
- B. Erickson Manufacturing Ltd. v. Canada (Border Services Agency): Erickson appealed a decision of the CITT regarding the tariff classification of tie-down straps. The appeal was dismissed. The court’s reasoning provides a brief overview of the statutory framework for tariff classification under Canadian law, as described by the Supreme Court of Canada in its 2016 Igloo Vikski Inc. decision, considers the role of explanatory notes, and states that while U.S. customs decisions are “worthy of consideration”, they are non-binding.
- KMS Tools and Equipment Ltd. v. The President of the Canada Border Services Agency(AP-2021-27): KMS appealed a tariff classification further redetermined by the CBSA as “ballpoint pens”, which was triggered by an adjustment request (refund) to the CBSA concerning redetermination of the classification of goods as “hobbycraft kits” and later as “other toys”. The CITT’s decision is a good example of a comprehensive tariff classification analysis, commencing at the heading level, specifically reviewing classification under Chapters 93 and 96. The CITT also reviews the application of General Interpretative Rule 2(a), as it applies to unfinished goods; and the facts which help to demonstrate the essential character of an unfinished good.
- Mazda Canada Inc v. Canada (Public Safety and Emergency Preparedness): Mazda sought a judicial by the Federal Court of Canada of the CBSA’s denial of a duty refund allegedly owing on defective imported vehicle parts. Mazda’s key argument relied on the administrative law doctrine of “legitimate expectations”. The court found that the CBSA’s decision was reasonable, and according, the duty refund was not available to Mazda.
- Stanley Black & Decker Canada Corporation v. The President of the Canada Border Services Agency (AP-2022-009): SB&D appealed a tariff classification determined during the course of a trade compliance verification concerning classification of goods as “other lamps” or “flashlights”. The CITT’s decision is a good example of a successful tariff classification appeal where the applicant provided conclusive evidence on the appropriate tariff classification. The CITT states that ” the goods in issue represent the evolution of how common low‑cost and relatively unsophisticated flashlights have developed into more sophisticated and versatile higher‑priced goods”. This finding may be helpful to importers seeking a broader application of tariff items traditionally used to classify less-sophisticated goods.
