Baker McKenzie’s Canadian international trade and customs team is publishing a series of articles reviewing 2024 trade and customs compliance developments and looking ahead to 2025’s burgeoning issues. This article focuses on Canada’s customs regime.
Before we dive into the customs outlook, here is an overview of the current state of politics in Canada, which includes a discussion of the legislative powers that remain while Canadian Parliament is prorogued until March 24, 2025.
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In 2024, we saw the long anticipated final launch of the Canada Border Services Agency (CBSA) Assessment and Revenue Management Client Portal, (CARM CP), the application of surtaxes on Chinese-origin goods, and the introduction of published “compliance priorities” to alert importers to verifications of particular customs programs and policies apart from classification, valuation and origin. We also saw the expansion of CBSA authority to enforce Canadian sanctions and an uptick in forced labour enforcement. Note that sanctions and forced labour will be addressed in our upcoming articles focused on these respective subject matters.
Looking ahead in 2025, we expect the Government to implement further surtaxes on Chinese origin goods, including semiconductors and solar panels, as promised in the Fall Economic Statement; however, these surtaxes depend on the Department of Finance’s readiness to issue the Order in Council while tackling possible U.S. tariffs and a possible spring election. We also expect that Canadian importers of U.S. goods and exporters to the U.S. will be preoccupied with the threat of U.S. 25% tariffs on Canadian imports and Canadian retaliatory tariffs.
As the CBSA approaches the 1-year mark in CARM in late 2025, we expect the CBSA to begin leveraging importer data to identify inconsistencies in accounting fields to meet their verification and compliance priorities, as outlined below. The proposed amendments to the CBSA’s Valuation for Duty Regulations continue to hang in the balance, as importers await revised amendments or clarifying policy to determine the scope of the amendments and whether their valuation methodologies are effected.
Importers can prepare for 2025 Canadian customs developments and enforcement risks as follows:
- Stay abreast of proposed US tariffs on Canadian goods and Canadian countermeasures and review our recommended steps to prepare for tariff uncertainty.
- Be mindful of the CARM transition deadlines that expire on January 19, 2025 (late accounting penalties) and on April 19, 2025 (posting financial security)
- Carefully review the amendments to the Customs Tariff and Canada’s preferential tariff treatments that came into effect on January 1, 2025 to determine whether your supply chain is affected.
- Consider whether the CBSA’s January 2025 trade compliance priorities and verification priorities target your supply chain and whether compliance lapses put you at risk for unpaid duties/taxes, penalties and interest.
- Continue to watch both Part I (should regulations be subject to further consultation) and Part II (should the regulations be in final form) of the Canada Gazette for publication of the amendments to the Valuation for Duty Regulations and any new D-memorandum and Customs Notices advising of their interpretation and coming into force date.
U.S. – Canada Tariffs
The Trump administration is reportedly planning 100 executive orders on day 1. One of executive orders might implemented 25% tariffs on goods imported from Canada, as the administration foreshadowed in November 2024. We write about the prospect of tariffs on goods imported to the US from Canada, Canada’s possible retaliatory tariff response, and how to prepare as a Canadian importer here.
Despite the political upheaval in Canada, the Government can still rapidly respond to tariffs imposed on Canadian goods by way of Order in Council, akin to a U.S. Executive Order. The Canadian Ministry of Finance is reported to have been compiling a list of goods that may be subject to Canadian retaliatory tariffs, with a trading value of approximately CAD 150 billion dollars. The selected products are intended to send a political message and to cause economic harm to U.S. exporters and businesses. Reported products include the following: ceramics, steel, furniture, alcoholic beverages, orange juice and pet food. If the U.S. implements tariffs against Canada, we expect that the Canadian Government will retaliate swiftly and eventually initiate a remission order process. Stay tuned.
CARM
The CBSA has released several onboarding guides (available here), which provide essential “how-to” information on CARM CP functionality. Note that the launch of the CARM CP has not been error-free. The CBSA is keeping importers up-to-date with implementation issues and their remedies here.
While a grace period for late accounting penalties, late payment penalties and late payment interest was introduced on October 21, 2024 with the launch of the CARM CP, that grace period ended on January 19, 2024. The CBSA noted in its cutover Customs Notice that the grace period could be extended. On January 15, the CBSA announced that transition measures will indeed end on January 19, 2025 and that goods imported into Canada must be accounted for within the prescribed timeframes. Late accounting penalties will be issued as of January 20, 2025
At the same time, the CBSA announced new temporary relief measures in respect of late payment penalties and late payment interest due to challenges with making payments on CARM. Late payment penalties, nor payment interest will be issued until further notice. The CBSA has promised a forthcoming Customs Notice to outline these details. Continue to check the CBSA’s newly issued notices here.
Importers should also be aware of the pending April 19, 2025 deadline to post financial security agreements on the CARM CP if registered in the CBSA’s Release Prior to Payment Program.
While importers are now required to make all adjustments to accounting entries (submission of Commercial Accounting Declarations (CAD)) after October 21, 2024 on the CARM CP, CBSA D-Memorandum D17-2-4, provides that importers may submit a “Pre-CARM Blanket Request” when adjustments are required for 100 or more Form B3 transaction lines within a 12-month period and no Pre-CARM “As Declared” CAD has been created.
Trade Verification Priorities
The CBSA announced its trade verification priorities and its compliance priorities for 2025. The priorities provide notice to Canadian importers of the products and programs within the CBSA’s compliance crosshairs and are typically updated in January and July of each year. Several products are subject to the CBSA’s 2025 trade verification priorities for their 2nd, 3rd and 4th round.
Tariff Classification
- Gloves (round 3) – Headings 39.26 and 42.03
- Bags (Round 3) – Headings 42.02
- Spent fowl (Round 3) – Heading 02.07, 16.01, 16.02
- Freezers and other freezing equipment (Round 1) – Heading 84.50 and 84.51
- Washers and dryers (Round 1) – Headings 84.50, 84.51
- LED lamps (Round 2) – Heading 85.39
- Furniture for non-domestic purposes (Round 4) – Headings 94.01 and 94.03
- Bicycle parts (Round 3) – Heading 87.14
- Disposable and protective gloves (Round 5) – Subheadings 3926.20, 4015.19
Valuation
- Apparel (Round 4) – Chapters 61 and 62
Origin
- Bedding and drapery (Round 3) – Headings 63.01, 63.02, 63.03
The CBSA first introduced “compliance priorities” in 2024. The updated compliance priorities for 2025 are as follows:
| Priority | Reasons & Importer Risk |
| Classification of frozen desserts containing 5% of dairy products. | Dairy products are supply-managed in Canada and are subject to import controls. Importing misclassified goods containing dairy products without a quota allocation and an import permit, may result in an “over-access commitment” tariff classification, which is subject to high duties (e.g. up to 300%). |
| Third round of verifications on gloves classified under headings 39.26 and 42.03. | With respect to Chapter 39, these goods include apparel products and disposable gloves. In response to the COVID-19 pandemic, the CBSA issued a remission order which provided relief from duties on PPE goods classified under heading 39.26, amongst others. The remission order was repealed as of May 7, 2022, and accordingly importers were permitted to claim relief within two years of the date of importation of eligible goods, so until May 6, 2024 for goods imported on May 6, 2022. The CBSA is likely targeting gloves to confirm that goods claiming relief under the remission order were properly classified under Chapter 39 or are properly classified going forward given the amount of gloves imported over the past four years, which happens to be the lookback period for re-determinations. With respect to Chapter 42 goods, these goods are largely apparel products with duties ranging from 0% to 15.5%. Goods misclassified under Chapter 42 leave importers at risk for duty and tax liability should goods be re-classified under a different tariff item with a higher duty rate. |
| GST verifications concerning exemption codes and vaping products (subject to excise duties) | The CBSA seeks to verify compliance with GST exemption codes, ensuring that importers are not underpaying taxes by relying on exemption codes for ineligible goods. The CBSA collects GST (Canada’s 5% VAT) on imported goods and remits these amounts to the Canada Revenue Agency. Importers are obligated to record GST rates or the applicable exemption code in Field No. 29 of a Canada Customs Form B3 (soon to be the “Commercial Accounting Document” under the new CARM Portal). The applicable GST exemption codes are listed in CBSA policy for certain goods as prescribed under the Excise Tax Act. The CBSA is also conducting verifications of vaping products, which are subject to both excise duties and taxes. Increases to the existing excise tax on vaping products, announced in the 2024 Federal Budget, took effect on July 1, 2024. Scrutiny of GST exemption codes and excise taxes may result in duty and tax liability for importers. |
| Import origin verifications under the Canada-European Union Comprehensive Economic and Trade Agreement and the Canada-United Kingdom Trade Continuity Agreement | The CBSA has proposed origin-related verifications in relation to goods relying on preferential tariff treatment under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Canada-United Kingdom Trade Continuity Agreement. Importers relying on preferential tariff treatments available under Canada’s FTAs must ensure that the goods at issue meet the rules of origin under the applicable FTA. Importers of commercial goods are also required to furnish certificates of origin to the CBSA to support an origin declaration. Importers who fail to properly assess the origin of imported goods, or do not have the requisite supporting documentation, risk the CBSA withdrawing preferential tariff treatment and re-determining duties and taxes owing in respect of the non-originating goods at a higher duty rate. For example, goods that are determined to be non-originating under the CETA will be subject to most-favoured nation (MFN) tariff treatment. |
| Verifications of licensees importing supply managed goods in reliance on the Duties Relief Program | The CBSA will be conducting verifications of licensees importing supply-managed goods under the Duties Relief Program (DRP), which relieves payment of duties at the time of import for goods that will be exported either in the same condition or after being consumed, expended or used in the processing of other goods. This compliance priority, coupled with the proposed verification of tariff classification of frozen desserts, signals a renewed enforcement effort by the CBSA to prevent spillage (e.g. DRP-imported goods entering Canadian dairy, poultry, and egg markets instead of being re-exported) within Canada’s tightly controlled supply management regime. This renewed enforcement comes at a time when Canada has expanded access to the Canadian dairy, poultry and egg markets through concessions to member states in FTAs (e.g. the USMCA and the CPTPP). |
| General tariff treatment to Russian and Belarussian origin goods | In March 2022, Canada repealed MFN tariff treatment for Russian and Belarusian origin goods. Accordingly, importers are now required to account for Russian or Belarusian origin goods under the General Tariff (GT), which applies a 35% duty rate. The CBSA has proposed to verify importer compliance with the application of the GT in respect of imports of iron or steel products, fertilizer, petroleum, non-ferrous metals, and tires. Failing to properly determine the origin of imported goods, especially when there are Russian and Belarussian origin inputs used to manufacture an imported product, may result in a redetermination of origin and corresponding duty and tax liability for the importer caused by the application of the GT, instead of MFN. |
| China Surtax Order (2024). | The CBSA is assessing compliance by Canadian importers with new surtaxes implemented against China. 100% surtaxes have applied to Chinese origin electric vehicles since October 1, 2024. See the list here. We write about the surtaxes further here. 25% surtaxes have applied to certain steel and aluminium products since October 15, 2024. See list here. |
If a CBSA verification uncovers compliance deficiencies, the CBSA has authority to re-determine the origin, tariff classification, value for duty or marking of an imported good at any time within four years of the time of accounting and release of imported goods. A re-determination results in the CBSA issuing a Detailed Adjustment Statement for unpaid duties, taxes, and interest. The CBSA also has authority to issue administrative monetary penalties by way of a Notice of Penalty Assessment. The CBSA’s Master Penalty Document provides further information on the CBSA’s tiered penalty structure where the amount owing by an importer correlates to whether an offence is reoccurring.
Unlike the voluntary disclosure programs in other customs jurisdictions, once the CBSA has issued a notification letter initiating a trade compliance verification, an importer can no longer avail themselves of the CBSA’s voluntary disclosure program. If non-compliance is uncovered throughout the course of a verification, an importer may be subject to AMPs and interest at the higher (specified) rate.
Amendments to the Customs Tariff and Preferential Tariff Treatments
The CBSA published the 2025 Customs Tariff, which was effective January 1, 2025. The Customs Tariff was amended to effect scheduled duty rate reductions, as required by Canada’s commitments in its Free Trade Agreements, the substitution of certain tariff classification preambles and tariff classification numbers in certain chapters. The accompanying CBSA Customs Notice is available here.
As of January 1, 2025, Canada implemented significant amendments to its unilateral preferential tariff programs, as outlined in this Customs Notice. For example, the following countries are no longer eligible for the following tariff treatments:
| General Preferential Tariff | Armenia, Belize, British Virgin Islands, Fiji, Georgia, Guatemala, Guyana, Iraq, Marshall Islands, Moldova, Nauru, Paraguay, Tonga, Turkmenistan, Tuvalu, Vietnam |
| Least Developed Country Tariff | Cape Verde, Samoa, Tuvalu and Vanuatu |
Canada has expanded duty free treatment under the Commonwealth Caribbean Countries Tariff to all textiles, apparel and made-up textile articles. Additionally, Canada updated its rules of origin for apparel products across all of Canada’s program to permit cutting and sewing of fabrics in developing and least developed countries to confer origin on the final apparel product, irrespective of the origin of the yarn and fabric. Canada has also modernized its shipment requirements.
Valuation for Duty Regulations
The CBSA published their “what we heard” report on the proposed amendments to the Valuation for Duty Regulations, which purport propose a “last sale” approach to customs valuation (we write about it here). Based on the representations by the CBSA, the draft regulations published last year are being amended to clarify the wording, but the CBSA has not specified whether the regulations will be published again in draft for further public consultation, or will instead be published as final regulations in Part II of the Canada Gazette. These proposed amendments have 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.
