Consultations needed on customs value

The Commodity, Tax, Customs and Trade Section of the Canadian Bar Association is concerned with potential amendments to the valuation for duty regulations announced in the 2021 federal budget.

In a submission to the Canadian Border Services Agency, the Section worries the CBSA might be using the consultation notice “to justify an exemption from the normal pre-publication and consultation requirements for regulatory amendments that impact international trade.” The Section is therefore “reluctant to engage in the process and lend credibility to an exemption request to normal pre-publication requirements should such an exemption be sought from the Treasury Board.”

The consultation notice does not provide the level of details required to comment on proposed changes that will have far-reaching implications. Including reversing the 2001 Supreme Court of Canada decision in Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc on sale for export, as well as several Federal Court of Appeal and Canadian International Trade Tribunal decisions on customs valuation methods. “It may also violate Canada’s obligations under CUSMA, CETA, the CPTPP, and the WTO Customs Valuation Agreement,” the submission reads.

Given that the Section is unable to review the text of any proposed amendments, it cannot properly comment except to say they appear to signal “a major policy shift in the treatment of imported goods that will impact Canadian workers, consumers, and businesses – and several Canadian government departments.”

High-level concerns

Canada is a signatory to the World Trade Organization’s Customs Valuation Agreement which recognizes that “customs value should be based on simple and equitable criteria consistent with commercial practices and that valuation procedures should be of general application without distinction between sources of supply.” How the term “sold for export” is defined in regulations is critical to the calculation of customs value since the latter is the price paid or payable for the good when it is sold for export to the country of importation.

The proposed changes would base the transaction value on the “sale that causes the goods to be exported to Canada,” or the last transaction in the commercial chain. In such a scenario, the Section writes, “determining the person who holds title to the goods at the time of importation will not be determinative in identifying the relevant sale for export to Canada.” This would result in uncertainty and in a determination of transaction value inconsistent with Canada’s largest trading partners.

The Section is also concerned with the proposed changes having unintended consequences, including significant uncertainty for businesses and discouraging innovation. “For instance,” the submission reads, “a company should not be treated differently merely because it has adopted technology and automated its ordering system rather than using a live person making orders by phone. However, various examples in the Consultation Notice suggest that how a company makes its orders will affect whether its purchase price can be used to determine the transaction value of the goods.”

Other potential drawbacks of the proposed changes include higher prices for consumers purchasing goods as well as job and tax losses in Canada. Basing the value for duty on the price to the consumer would make it pointless for foreign companies to make online sales through a Canadian affiliate which would likely result in those affiliates being shut down. “If non-residents stop making sales through their Canadian subsidiaries, Canada will lose the income taxes from sales made through the Canadian subsidiaries.”

The CBA Section is also worried the proposed changes might result in Canada running afoul of various trade agreements. “The CBSA should consider Canada’s obligations regarding valuation rules under the World Customs Organization, WTO, and other relevant trade agreements. Without actual draft legislation to review, it is impossible to determine if Canada would meet these obligations.”

The Section hopes the CBSA reconsiders its process and commit to meaningful and broad consultations on these significant proposals.