Importer Alert: Canada Border Services Agency Issues its Audit Priorities for 2023
The Canada Border Services Agency (“CBSA”) has released an updated list of its verification priorities as of January 2023 (the "January Update”). The January Update identifies the CBSA’s current priority industries and products, which are more likely to be the subject of trade compliance verifications conducted by the CBSA. The CBSA also used this opportunity to reiterate the fact that goods that originate in Russia or Belarus no longer benefit from Most-Favoured-Nation (“MFN”) tariff treatment and are subject to a duty of 35%, and it identified specific products that are currently being monitored to ensure compliance with this change. This raises important supply chain due diligence issues for importers who may be sourcing goods made in whole or in part from items originating in Russia or Belarus or that were at some point subject to manufacturing processes in either of those countries.
Updated List of Verification Priorities
Three declarations made by importers upon the importation of goods into Canada are key to determining the amount of duties owing: the tariff classification of the goods, their origin for purposes of MFN or preferential tariff treatment, and their valuation or “value for duty”. CBSA verifications may focus on these and other customs-related issues with imported goods.
The complete list of the CBSA’s current verification priorities is reproduced in the table below, with items that were added in the January Update highlighted. Note that there are currently no products identified as priorities for origin compliance verifications, and the only priority identified for valuation compliance verifications is apparel products.
CBSA Verification Priorities
Relevant HS Numbers
Headings 02.07, 16.01 and 16.02
Furniture for non-domestic purposes
Headings 94.01 and 94.03
Footwear ($30 or more per pair)
Parts of lamps
Cell phone cases
Headings 39.26, 42.02 and 85.17
Headings 39.26 and 42.03
Other mountings and fittings, suitable for furniture
Air heaters and hot air distributors
Flashlights and miners’ safety lamps
Parts of machines and mechanical appliances
Parts for Use with Machinery of Chapter 84
Indicator Panels and Light-Emitting Diodes
Heading 85.31 and 85.41
Disposable and Protective Gloves
Subheadings 3926.20 and 4015.19
Chapters 61 and 62
Importantly, though the items noted above are the focus areas for the CBSA, they do not limit the CBSA’s verification activities, and the CBSA can target other goods and issues in their verifications.
General Duty of 35% for Goods Considered to be Originating in Russia or Belarus
As part of a wide range of economic measures imposed in response to Russia’s invasion of Ukraine, Canada withdrew MFN status for imports of goods originating in Russia and Belarus effective March 2, 2022. The January Update reiterates that goods that are considered to originate in Belarus or Russia are now subject to a general tariff of 35% when imported into Canada. The CBSA notes that “[i]t is a priority for the Government of Canada that goods originating from Russia or Belarus do not enter the Canadian economy under the MFN tariff treatment”.
This new measure will require some supply chain due diligence on the part of importers as it may not only apply to goods imported from Russia or Belarus, but also to goods exported to Canada from third countries. It is not always immediately clear whether a product exported from a third country may be considered to originate in Russia or Belarus in light of its parts and components or as a result of manufacturing processes occurring outside of that third country.
The CBSA has identified five types of goods that are currently being monitored for compliance with this change:
- products of iron or steel;
- non-ferrous metals; and
Importers of these products and possibly others could receive inquiries from the CBSA regarding the origination of the goods they are importing and the potential application of the 35% tariff.
The January Update also notes that the withdrawal of MFN status from goods that originate in Russia and Belarus applies to goods that are imported directly from those countries and from third countries. It discusses the “50% rule” regarding the application of MFN treatment, stating that “[i]f a good is produced with inputs (materials, labour, etc.) from Russia or Belarus, at least 50% of the cost to produce the good must be incurred in one or more MFN beneficiary countries or Canada [for the good to benefit from MFN Treatment]”. Otherwise, the good is subject to a 35% duty on import.
What Importers Should Do
Importers of products identified above or goods that may originate in whole or in part from Russia or Belarus should be aware of the increased risk of being subject to a trade compliance verification or audit by the CBSA, and be prepared to support and defend their declarations of tariff classification, value for duty, and origin. CBSA compliance verifications can be onerous and time-consuming exercises and can lead to significant assessments of additional duties, interest, and penalties for previously imported goods that, in the CBSA’s view, were not properly declared when imported.
The McCarthy Tétrault International Trade and Investment team has significant experience assisting clients with these matters and will continue to monitor developments as the CBSA releases additional information regarding its priorities for 2023 and beyond.